Bearish View
- Sell the AUD/USD pair and set a take-profit at 0.7000.
- Add a stop-loss at 0.7150.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 0.7100 and a take-profit at 0.7200.
- Add a stop-loss at 0.7000.
The AUD/USD pair declined to the lowest level since December 2021 after the Fed interest rate decision. The pair is trading at 0.7088, which is about 6.35% below the highest level in 2021.
Fed Decision
The AUD/USD pair declined as the US dollar bounced back after the latest interest rate decision by the Fed. As was widely expected, the bank was relatively hawkish considering that the American economy is doing well.
Its unemployment rate has fallen below 4% while inflation has risen to over 7%. Other areas of the economy like consumer confidence and the housing market are also holding steady.
For example, data published on Wednesday showed that the US new home sales jumped sharply in December. Previous data revealed that existing home sales, building permits, and housing starts also did well in December.
Jerome Powell, the Federal Reserve chair, said that the bank expects to start hiking interest rates in March. That statement was in line with what analysts were expecting. Still, the chair did not rule out more aggressive tightening in a bid to slow inflation down.
The next focus for the AUD/USD pair is the upcoming decision by the Reserve Bank of Australia (RBA). The bank, which will hold its first meeting of the year next week, has three options ahead. First, it could start tapering its A$4 billion weekly asset purchases and then end the program in May.
Second, the bank could start tapering the purchases and then put a review in May. Finally, it could terminate the program in February and then point to rate hikes later this year. With other central banks tightening, there is a likelihood that the bank will embrace the latter option. Besides, the job market is robust and inflation has also risen recently.
AUD/USD Forecast
The four-hour chart shows that the AUD/USD pair has been in a strong bearish trend in the past few days. The pair declined to the lowest level in more than a month after the FOMC decision. By so doing, it managed to move slightly below the key support level at 0.7090, which was the lowest level on December 20th.
The pair has moved below the 25-day and 50-day moving averages while the MACD is below the neutral level. Therefore, the pair will likely keep falling as bears target the key support at 0.7000.
