Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6500.
- Add a stop-loss at 0.6300.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6320 and a take-profit at 0.6250.
- Add a stop-loss at 0.6425.
The AUD/USD price rose after the new Australian government unveiled its budget and after the latest consumer price index data. It rose to a high of 0.6400, which was the highest level since October 24 of this year. It has risen by more than 3.5% from the lowest level this month.
Australia budget and inflation
The Australian dollar rose slightly after the new Labor government unveiled its budget. The Treasurer said that the budget represented hard decisions for tough times. He stressed the need to safeguard the country’s fiscal situation while providing support to those in need.
The government allocated A$7.5 billion to support the cost of living in terms of cheaper medical care and paid parental leave. In addition, the government said that it will slash over $22.5 billion of wasteful spending in the next four years. These savings will help to address the national debt, which has risen from $534 billion in 2019 to A$1 trillion.
In his statement, Chalmers said that the Australian economy will soften to 3.25% this year and 1.5% in the following year. He expects that inflation will rise to 7.5% in the fourth quarter of this year.
The AUD/USD price also reacted to the latest Australian inflation data. According to the Bureau of Statistics, the headline consumer price index (CPI) rose from 6.1% in Q2 to 7.3% in the third quarter as the cost of food and energy rose. This was the highest inflation figure in decades.
The closely-watched weighted mean inflation rose from 4.2% to 5% while the trimmed inflation rose from 4.9% to 6.1%. Still, analysts expect that the Reserve Bank of Australia (RBA) will remain cautious about rate hikes in the coming months. It will likely continue with its smaller 0.25% rate hikes.
AUD/USD forecast
The AUD/USD pair tilted upwards during the American and Asian sessions. As it rose, it managed to move above the important resistance level at 0.6363, which was the lowest level on September 28. It remains inside the green ascending channel and slightly above the 25-day moving average.
The Relative Strength Index (RSI) has formed a bullish divergence pattern. Therefore, more upside will be confirmed if the pair moves above the upper side of the ascending channel. If this happens, the next key resistance point to watch will be at 0.6500.
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