Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6600.
- Add a stop-loss at 0.6800.
- Timeline: 1-2 days.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6850.
- Add a stop-loss at 0.6670.
The AUD/USD exchange rate plunged on Tuesday and Wednesday morning as the year started in a sombre mood. It dropped to a low of 0.6697, the lowest level since December 23. The pair has retreated by more than 1.55% from the highest point this week.
Worries of the global economy
The Australian dollar retreated as the US dollar made a strong comeback on the first trading day in the US and Australia. The strength of the greenback coincided with a relatively sombre mood in the financial market. For example, the VIX index, which is the most popular fear gauge on Wall Street rose by more than 8%.
Similarly, the dollar index rose by more than 1% as the greenback surged against other currencies like the euro, pound, Swiss franc, and Canadian dollar. Commodities like crude oil, copper, and iron ore also plunged while stock indices like the Dow Jones and ASX tumbled by more than 1%.
The sombre mood happened as concerns about the global economy continued. There are risks that the Australian and global economy will struggle in 2023 as interest rates are set to remain high. Companies, which are an important part of the GDP are expected to slash their costs as they navigate the current macro conditions.
The next key catalyst for the AUD/USD price will be the upcoming US ISM manufacturing PMI data and the FOMC minutes. Economists polled by Reuters believe that manufacturing activity in the US dropped slightly in December. Precisely, they expect the PMI dropped from 49.0 to 48.5 in December. A PMI figure of below 50 is a sign that business activity is slowing.
The pair will also react to the latest Fed minutes. These minutes will provide more information about what the Fed deliberated in its December meeting and what to expect in the first quarter.
AUD/USD forecast
The AUD/USD exchange rate drifted lower on Tuesday as the US dollar index roared back. It is slightly above the lower side of the Bollinger Bands and slightly below the 25-day moving average. It also moved below the ascending trendline shown in black while the Stochastic Oscillator moved close to the oversold level.
The pair will likely continue falling as sellers target the next key support level at 0.6600. The stop-loss of this trade will be at 0.6800.
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