Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6850.
- Add a stop-loss at 0.6740.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6740 and a take-profit at 0.6600.
- Add a stop-loss at 0.6850.
The AUD/USD rose on Monday morning as investors repositioned for the upcoming US consumer inflation data and Federal Reserve interest rate decision. It rose to a high of 0.6812, the highest level since December 5.
Fed decision and US inflation data
The main catalyst for the AUD/USD and other currency pairs will be the latest economic data from the United States and the latest Federal Open Market Committee (FOMC). Economists expect that America’s inflation continued softening in November as gasoline prices dropped to the lowest level in more than 12 months.
Other areas have also showed encouraging signs about inflation. For example, the supply chain challenges that held pushed prices higher have made significant improvements in the past few months. In fact, sea-freight shipping costs have dropped while many retailers have announced big discounts. Therefore, falling inflation will likely have an impact on the Fed decision on Wednesday.
Economists expect that the Federal Reserve will slow the pace of rate hikes in this meeting. Precisely, they expect that the bank will increase rates by 50 basis points in a bid to ease inflation. It has already hiked rates by 400 basis points this year.
The bank will also continue shrinking its balance sheet through its quantitative tightening (QT) policy. Therefore, the main concern for the Fed is that the American economy could be heading towards a recession in 2023.
In a report published last week, economists estimated that the US unemployment rate will rise to 5% in 2023 as the economy slows. Further complicated the situation is the fact that the yield curve has inverted to the lowest level in decades. Historically, a yield curve inversion is usually accompanied by a recession.
There will be no major economic data from the US and Australia on Monday. Therefore, investors will remain laser-focused on the upcoming Fed decision.
AUD/USD forecast
The AUD/USD price has been in a bullish trend in the past few days. The 25-day and 50-day moving averages made a bullish crossover on Friday, which is a positive sign. This price is also important because it was the highest level on November 15. The MACD and awesome oscillator have continued rising and are slightly above the neutral point.
Therefore, the pair will likely continue rising ahead of the Fed decision and US inflation data. A bullish breakout will see it rise to the next key resistance point at 0.6850.
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