Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6250.
- Add a stop-loss at 0.6497.
- Timeline: 1 day.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6500.
- Add a stop-loss at 0.6280.
The AUD/USD price dropped slightly in the overnight session as investors reacted to the Federal Reserve statement. It was trading at 0.6350, which was its lowest level since October 25. This price is a few pips below last week’s high of 0.6520.
Fed and RBA decisions
The AUD/USD remained in a tight range after the Fed and the Reserve Bank of Australia (RBA) published its monetary policy decision. On Tuesday, the Fed continued with its smaller rate hikes as it raised rates by 0.25%. It hinted that it will continue hiking rates in the coming months as it fights the soaring inflation.
RBA’s rate decision was followed by another aggressive rate hike by the Federal Reserve. In line with expectations, the Fed hiked rates by 75 basis points for the fourth straight meeting. It has now hiked rates by 375 basis points.
In its statement, the Fed said that it will continue rising interest rates albeit at a slower pace in a bid to fight the elevated inflation. According to Jerome Powell, the Fed will be data-dependent when it comes to rate hikes.
Like other central banks, the Fed is fighting against the elevated inflation rate. Data published in October showed that the country’s inflation rose to 8.3% in September, which was higher than the Fed’s target of 2%.
The Fed will watch this week’s non-farm payrolls (NFP) data that come on Friday. Economists expect the data to show that the economy added more than 250k jobs in October. The unemployment rate is expected to have remained at the 50-year low.
The AUD/USD pair will also react to next week’s inflation data. A sign that America’s inflation is slowing will pressure the Fed to start pivoting its policies. Analysts expect that the Fed will now hike by 50 basis points in December.
AUD/USD forecast
The AUD/USD pair pulled back slightly after the Fed decision and Powell’s press conference. On the four-hour chart, the pair crossed the standard pivot point and moved below the 25-day moving average. The pair retested the support at 0.6350, which was the highest point on October 17.
At the same time, the Relative Strength Index (RSI) moved slightly below the neutral point of 50. Therefore, the path of the least resistance for the pair is downwards, with the next level to watch being at 0.6250.
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