Bearish View
- Sell the AUD/USD pair and set a take-profit at 0.7300.
- Add a stop-loss at 0.7460.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 0.7420 and a take-profit at 0.7500.
- Add a stop-loss at 0.7560.
The AUD/USD pair continued its bearish trend as the strength of the US dollar continued and as volumes remained thinned. The pair dropped to a low of 0.7395, which is about 3.50% below the highest level this month. This price is also close to its lowest level since March 22.
Australian Dollar Sell-Off
The Australian dollar has been in a strong downward trend in the past few days even after the hawkish Reserve Bank of Australia (RBA) decision. Early this month, the bank signaled that it was losing its patience on inflation and that it will likely start tightening in the coming months. Most analysts expect that the bank will deliver its first 0.25% rate hike in June this year.
Since its decision, other central banks have moved faster than expected. In New Zealand, the central bank delivered its biggest rate hike in 22 years as it warned about the rising inflation. Elsewhere, in the Canada, the BOC delivered a 50 basis point rate hike. While the European Central Bank did not hike rates, Christine Lagarde hinted that the hike will come later this year.
The AUD/USD is also falling because of the stronger US dollar. The dollar index crossed the $100 level for the first time in years as investors continued to focus on the hawkish Federal Reserve. Analysts expect that the Fed will be more hawkish in the coming months in its bid to battle with inflation.
The pair has also retreated because of the upcoming election in Australia. The election will see Scott Morrison, the incumbent, battle with Labor’s Anthony Albanese. Early polls show that Morrison will win the election.
Meanwhile, there are concerns about the ongoing Covid-19 cases in China. The crisis has led to more lockdowns in China, which will likely affect the country’s demand.
AUD/USD Forecast
The four-hour chart shows that the AUD/USD pair has been in a strong downward trend in the past few weeks. Along the way, the pair has dropped to the 38.2% Fibonacci retracement level. It has also dropped below the lower side of the Andrew’s Pitchfork, signaling that bears are in control. The pair has also moved below the 25-day and 50-day moving averages while the MACD has moved below the neutral level. It has also declined below the key support at 0.7400.
Therefore, there is a likelihood that the pair will keep falling as bears target the next key support level at 0.7300.
