Bearish View
- Set a sell-stop at 0.6715 and a take-profit at 0.6650.
- Add a stop-loss at 0.6800.
- Timeline: 1 day.
Bullish View
- Set a buy-stop at 0.6770 and a take-profit at 0.6850.
- Add a stop-loss at 0.6700.
The AUD/USD crashed to the lowest level since June 2020 as the US dollar continued its strength. The pair has fallen by more than 16% from its highest level in 2021.
China New Covid-19 Curbs
The Australian dollar continued its decline against the US dollar after Chinese cities restarted curbs ranging from lockdowns to business halts as they battle a new variant of Covid-19.
The country is sticking with its Covid-zero strategy despite low caseloads. In a statement, officials at Beijing said that the new curbs will be as targeted as possible to reduce the broader damage to the economy.
Recent data suggests that the country is in recovery mode following months of lockdowns. Exports and imports have risen while business confidence has continued rising. All these are positive events for Australia because of the vast amount of goods that China buys. Analysts expect that the two countries will iron out key differences that led China to impose import curbs from Australia.
The AUD/USD pair declined as the US dollar continued its strength. The greenback has risen sharply against most currencies as fears of a global recession rise. The dollar tends to do well in a period of higher risks since most people and investors tend to move to its safety.
The next important data to watch will be the upcoming American consumer and producer inflation data. Economists polled by Reuters expect the data to show that the headline consumer inflation rose from 8.6% in May to 8.8% in June. Excluding the volatile food and energy prices, analysts expect that inflation declined slightly.
Recent data show that inflation is possibly nearing its peak. Shipping costs have started to fall as demand eases. At the same time, the prices of key commodities like copper and iron ore have all declined.
Still, the Federal Reserve will likely continue hiking interest rates this month. Analysts expect a 0.75% rate hike followed by another 0.50% hike in September. The RBA is also expected to continue hiking rates in the coming months.
AUD/USD forecast
The AUD/USD pair declined sharply during the Australian session. It fell to a low of 0.6716, which was the lowest point since 2020. As it dropped, it moved below the important support level at 0.6761 where it had struggled to move below several times this month.
The Australian dollar is below the 25-day and 50-day moving averages. It has also dropped below the descending trendline shown in blue. While the pair has formed a morning star pattern, there is a likelihood that it will continue falling as bears target the next key support at 0.6680. This view will be confirmed if it moves below the lower point of the morning star at 0.6716.
