Bearish View
- Sell the AUD/USD and set a take-profit at 0.7100.
- Add a stop-loss at 0.7250.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 0.7200 and a take-profit at 0.7300.
- Add a stop-loss at 0.7100.
The AUD/USD pair declined to the lowest level since January 11th after weak Australian consumer confidence data. It also retreated as the US dollar made a strong comeback as bond yields jumped. It is trading at 0.7180, which is about 2% below the highest level last week.
Australia Consumer Confidence
Like in most western countries, consumer spending is the biggest constituent of the Australian economy. Therefore, investors and policymakers constantly look at consumer confidence data. On Tuesday, data by ANZ Bank showed that consumer confidence declined 7.6% last week to about 97.9. This was the lowest it has been since 1992.
The decline in consumer confidence led to a sharp decline in consumer spending. While spending typically drops after Christmas, last week’s drop was about 10% lower than in the most recent years.
This decline was attributed to a number of reasons. For one, Australia is seeing a strong wave of Covid-19 that has forced states to announce some restrictions. Unlike most countries, Australia has still closed its borders with most countries.
Still, analysts at Commonwealth Bank believe that the Reserve Bank of Australia (RBA) will start to normalize later this year. They expect that inflation will remain high and the unemployment rate to keep falling.
The AUD/USD decline was mostly because of the strong dollar. The bond market has continued its sell-off this week. On Tuesday, the yield of the 10-year bond rose to the highest level in over two years. Bond prices and yields move inversely.
Rising bond yields is a sign that investors believe that the Federal Reserve will continue tightening in a bid to slow inflation. Later today, the AUD/USD pair will react to the latest American housing starts and building permits data. Their impacts on the data will be muted though.
AUD/USD Forecast
On the four-hour chart, we see that the AUD/USD pair has been in a bearish trend in the past few days. Along the way, it has formed an ascending channel shown in black. It is currently hovering slightly above the lower side of this channel.
It has also moved below the 38.2% Fibonacci retracement level. Most importantly, the pair has moved below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has dropped to 40. Therefore, the pair will likely keep falling as bears target the key support at 0.7125.
