Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6600.
- Add a stop-loss at 0.6790.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6715 and a take-profit at 0.6820.
- Add a stop-loss at 0.6600.
The AUD/USD pulled back to the lowest level since December 7 as the divergence between the Federal Reserve and the RBA emerged last week. It dropped to a low of 0.6687, which was about 3% below the highest level last week.
RBA and Fed divergence
The Australian dollar pulled back after Wednesday's latest Fed interest rate decision. In it, the Fed decided to hike interest rate by 0.50%, pushing them to the highest level in more than 15 years. The rate increase was in line with what analysts were expecting.
In its statement, the Fed said that it will need to continue its fight against inflation in the coming months. It hinted that it will continue hiking interest rates by another 0.75% before hitting a strategic pause in 2023. This was a much bigger forecast than what analysts were expecting.
As a result, the statement was a divergence from what the Reserve Bank of Australia (RBA) has been doing. The RBA has hiked rates by 0.25% in the past three straight meetings and hinted that its rate hiking cycle was about to end.
Therefore, investors believe that the Fed maintained a more hawkish tone than the RBA. This explains why American stocks have pulled back sharply after the Fed delivered its interest rate decision. The Dow Jones and Nasdaq 100 indices have all dropped by more than 3% in the past two days.
Following the Fed and RBA decisions, the financial market enters the lame-duck period. As such, while the upcoming American consumer confidence numbers are important, they will not have an important impact on the pair.
Economists expect that the country’s consumer confidence rose from 100 to 101.1 in November. The RBA will publish the minutes of the last meeting on Tuesday.
AUD/USD forecast
The four-hour chart shows that the AUD/USD price has been in a strong bearish trend following the RBA decision. It moved below the ascending trendline shown in black thus invalidating the ascending triangle pattern. The pair also moved below the 25-day and 50-day moving averages. Similarly, the Relative Strength Index (RSI) has moved close to the oversold level.
The pair has formed a bearish pattern. Therefore, it will likely have a bearish breakout as sellers target the next key support level at 0.6600. A move above the resistance point at 0.6740 will invalidate the bearish view.
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