Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6700.
- Add a stop-loss at 0.6900.
- Timeline: 1-3 days.
Bullish view
- Set a buy-stop at 0.6800 and a take-profit at 0.6900.
- Add a stop-loss at 0.6700.
The AUD/USD exchange rate has been tilting upwards in the past few days as investors reposition for the coming year. It rose to a high of 0.6800 on Wednesday, the highest level since December 15. This price was about 2.50% above the lowest level this month.
No major economic events
The Australian dollar drifted upwards in a relatively calm week with no major economic data and market-moving events. Most investors are still in holiday mode, with several large entities closed until the coming year.
The only data that came out this week were the US housing price index and the latest pending home sales numbers. Data by S&P showed that house prices continued dropping in November as mortgage rates rose. And on Wednesday, data revealed that pending home sales dropped by 4% in November after falling by 4.6% in the previous year. That decline was bigger than the median estimate of 0.8%.
These numbers show that the actions of the Federal Reserve were having an impact on the housing market. In response to the elevated inflation rate, the Fed hiked rates by 450 basis points. The most recent rate hike happened in December when the Fed increased by 50 basis points. It then hinted that it will continue increasing rates in the coming year.
The Reserve Bank of Australia (RBA), on the other hand, delivered its third straight 0.25% hike in December. It hinted that it was nearing the end of its rate hike cycle since inflation has shown signs of easing in the past few months.
Meanwhile, the pair also reacted to the ongoing winding down of Covid-19 restrictions in China. The country, which is still Australia’s biggest trading partner, ended most of its restrictions, including quarantine. Still, analysts believe that China’s slowdown will continue, which explains why the Bloomberg Commodity Index pulled back.
AUD/USD forecast
The AUD/USD pair tilted upwards in a low-volume environment. As it rose, the pair retested the lower side of the ascending channel shown in blue. It also moved slightly above the Ichimoku cloud. A closer look shows that it has formed a small rising wedge pattern. In price action analysis, this pattern is usually a bearish sign.
Therefore, there is a likelihood that the pair will have a bearish breakout in the coming days as sellers target the key support at 0.6700. A stop-loss for this trade will be at 0.6800.
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