Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6596.
- Add a stop-loss at 0.6710.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6700 and a take-profit at 0.6750.
- Add a stop-loss at 0.6635.
The AUD/USD exchange rate continued moving sideways as traders watched hawkish statements by Fed officials and a slowing Chinese economy. The pair was trading at 0.6676 on Tuesday, a few points above last week’s low of 0.6596.
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More Fed hikes ahead
The Australian dollar has been unchanged in the past few weeks. This consolidation continued on Monday after the Chinese statistics agency published weak consumer inflation data. The headline consumer inflation moved to zero in June, moving close to deflation.
While low inflation is usually ideal, it tends to be a signal that a country’s economy is decelerating. Therefore, there is a likelihood that the country’s economy will continue worsening in the coming months.
Analysts at Nomura, Goldman Sachs, and HSBC recently downgraded their estimate for Chinese growth this year. China’s recovery is an important part for Australia because of the vast goods it ships to the country.
The AUD/USD pair also reacted to the latest statements by several Fed officials on Monday. Loretta Mester, Raphael Bostic, and Mary Daly insisted that the country’s inflation remains sharply higher than estimates.
Therefore, they insisted that the Fed has more rates to hikes. Data by CME is pricing in another 0.25% rate hike this month and a final one later this year. While inflation is slowing, the officials warned that it was still too high.
Fed’s James Bullard will speak on Tuesday, a day ahead of the latest American consumer price index (CPI) data. The most recent estimates are that the American inflation continued dropping in June.
Precisely, economists expect the data to reveal that the headline inflation dropped to 3.1% in June. Core inflation is expected to come in at 5.0%, higher than the Fed’s target of 2.0%.
AUD/USD technical analysis
The AUD/USD pair has moved sideways this month. It has remained between the important support and resistance levels at 0.6596 and 0.6706. The pair has struggled moving below and above these levels in the past few days.
It is consolidating at the 25-period and 50-period moving averages while the Average True Range (ATR) has moved sideways. Therefore, the pair will likely remain in this range on Tuesday as investors wait for the US inflation data. Stronger CPI data will see the pair drop and retest the support at 0.6596.
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