Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6645.
- Add a stop-loss at 0.6825.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6790 and a take-profit at 0.6840.
- Add a stop-loss at 0.6700.
The AUD/USD pair dropped to the lowest level since June 2020 as the US dollar strength continued. The Australian dollar crashed to a two-year low of 0.6727, which was about 12% below he highest point in June this year.
Commodity prices and US inflation data
The AUD/USD pair dropped sharply as investors watched the performance of commodity prices. Oil crashed by almost 10% as investors continued worrying about a global recession. Other commodities like copper, nickel, aluminium, and iron ore also declined sharply during the overnight session. The Australian dollar is often seen as a proxy for commodity prices.
The pair also declined as the US dollar strength gained steam. The dollar has surged by more than 10% this year as investors focus on the actions of the Federal Reserve. To deal with the soaring inflation, the bank has embarked on a tightening phase. It hiked rates by 0.25% in March followed by 0.50% and 0.75% in May and June, respectively.
Now, analysts expect that the bank will deliver another jumbo 75 basis point hike later this month. In an interview this week, Raphael Bostic, a Fed member, said that he believed that the market can take several more hikes this year. Other officials have sounded optimistic about the need for more increases.
The case for a bigger hike was seen on Friday when the US published strong inflation data. The numbers showed that the American economy added over 372k jobs while the unemployment rate remained unchanged at 3.6%.
The AUD/USD pair will react to the upcoming US consumer inflation data. Economists expect the data to show that inflation remained at an elevated level as food and gas prices surged. They see that the headline inflation rose to 8.8% in June. Therefore, the pair will likely maintain its hawkish tone.
AUD/USD forecast
The AUD/USD pair dropped to a low of 0.6700, which was the lowest level since 2020. It then bounced back as some investors bought the dip. It is now trading slightly below the first support of the standard pivot point. It has also moved below the 25-day and 50-day moving averages. The current price is where it struggled to move below earlier this month.
Therefore, the pair will likely resume the bearish trend as sellers target the key support at 0.6640, which is the third support of the standard pivot point.
