Bearish View
- Sell the AUD/USD and set a take-profit at 0.6800.
- Add a stop-loss at 0.7050.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 0.7010 and a take-profit at 0.7100.
- Add a stop-loss at 0.6915.
The AUD/USD pair moved sideways as investors assess the current market conditions as data point to peaking inflation. Investors are also paying a close attention to the ongoing campaign in Australia. It is trading at 0.6990, which is slightly above this week’s low of 0.6912.
Is Inflation Cooling?
Investors have been paying a close attention to trends in inflation as commodity prices surge and logistical challenges remain. In Australia, inflation rose to the highest level in 20 years in the first quarter and there are risks that it will rise to over 6% later this year.
In the US, data published by the government showed that inflation is still at elevated levels. On an annualized basis, inflation rose by 8.3% in April. Excluding the volatile food and energy products, prices rose by 6.2%.
However, a closer look shows that inflation may have peaked. For one, the headline and core inflation moved slightly lower than where they were in the previous month.
Behind the scenes, there are also signs that commodity prices are easing. While America’s gas prices is at record highs, the price of crude oil is about $30 below its year-to-date high. Similarly, copper has dropped to the lowest level since July last year.
The AUD/USD will today react mildly to the upcoming American Producer Price Index (PPI) data. Like with the CPI, analysts believe that the PPI declined to 10.7% while the core PPI fell to 8.9%.
Investors are also watching the ongoing campaign in Australia. Recent data shows that Anthony Albanese has a narrow lead compared to Scott Morrison. In the final debate, Albanese said that he will support a 5.1% wage increase, a move that has been criticized by Morrison. The latter argued that an arbitrary wage increase will push many small businesses out of business.
AUD/USD Forecast
The AUD/USD pair has found a strong support at this week’s low of 0.6900. On the four-hour chart, the pair has moved to the first support of the standard pivot point. It has also moved slightly below the 25-day and 50-day moving averages. Also, it managed to retest the important resistance at 0.7036.
Therefore, a move below the support at 0.6900 will mean that sellers have prevailed. If this happens, the next key level to watch will be at the support at 0.6800. A move above Wednesday’s high of 0.7050 will invalidate the bearish view.
