Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6600.
- Add a stop-loss at 0.6800.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6750 and a take-profit at 0.6850.
- Add a stop-loss at 0.6670.
The AUD/USD dropped to the lowest level since 2020 as the US dollar strength continued. The pair retreated to a low of 0.6670, meaning that the Australian dollar has fallen by double digits this year.
Risk-on sentiment
The AUD/USD pair continued its bearish trend on Monday amid a sustained risk-off sentiment in the market. This sentiment has emerged as concerns about a global recession and monetary policies continue.
In the United States, the Federal Reserve has maintained its most hawkish stance in decades. It has already hiked interest rates by 225 basis points this year and analysts expect that it will continue hiking this week.
Inflation data published last week showed that consumer prices remained stubbornly high in August. The headline consumer price index (CPI) rose by 8.5% while core CPI rose to 6.3% year-on-year as rent prices rose.
Therefore, analysts believe that the Fed will deliver another 0.75% rate hike on Wednesday. Some believe that the bank could surprise with a jumbo 100 basis point hike.
There will be no important data from the US and Australia on Monday. Therefore, investors will focus on the upcoming minutes of the Reserve Bank of Australia (RBA) meeting. In this meeting, the bank decided to hike interest rates by 0.50%.
Australia's inflation has remained at the highest level in years and the RBA expects that it will peak in the fourth quarter of the year. The labor market has continued tightening even as the unemployment rate rose slightly to 3.5%. The numbers revealed that most Australians were working multiple jobs to make ends meet.
The other key catalysts for the Australian dollar will be the upcoming UK housing numbers. With inflation soaring, analysts expect that the country’s building permits and housing starts continued weakening in August.
AUD/USD forecast
The AUD/USD price dropped to a low of 0.66665, which was the lowest level since 2020. As it dropped, the pair managed to move below the important support level at 0.6683, which was the lowest level this year.
The pair has moved below the 25-period and 50-period moving averages. The Relative Strength Index (RSI) managed to move above the oversold level. It has also formed an inverted cup and handle pattern, which is usually a bearish signal.
Therefore, the pair will likely continue falling as sellers target the next key support level at 0.6600. A move above the important resistance level at 0.6800 will invalidate the bearish view.
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