Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6445.
- Add a stop-loss at 0.6550.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6500 and a take-profit at 0.6575.
- Add a stop-loss at 0.6400.
The Australian dollar suffered a harsh reversal after the relatively weak Australian retail sales and US consumer confidence report. The AUD/USD exchange rate plunged to 0.6490 on Wednesday as attention turned to the upcoming US jobs numbers and the Federal Reserve decision.
Fed and RBA convergence
The AUD/USD pair has been in the spotlight in the past few days as investors predict a convergence between the Federal Reserve and the Reserve Bank of Australia (RBA).
A report released last week revealed that inflation in Australia remained at an uncomfortable level in the first quarter. According to ABS, the headline CPI rose by 1% in Q1, higher than the expected 0.8%.
Inflation rose by 3.6% on a YoY basis, almost double the RBA target of 2.0%. Therefore, these numbers mean that the RBA will not be in a hurry to start cutting interest rates as expected.
Top Australian banks have now pared back their estimate for when the first cut will happen. In a note on Tuesday, the Commercial Bank of Australia (CBA) said that the RBA will deliver its rate cut in November if inflation retreats.
Still, the economy’s performance could have an impact on the RBA action. A report released on Tuesday showed that the country’s retail sales dropped by 0.4% in March while the private sector credit rose by just 0.3%.
The AUD/USD pair also retreated as traders focused on the upcoming Federal Reserve decision. Like the RBA, analysts expect that the Fed will maintain a hawkish tone since inflation has remained stubbornly high.
The headline Consumer Price Index (CPI) rose to 3.5% while the Personal Consumption Expenditure (PCE) figure rose to 2.5%. These numbers mean that inflation is taking a longer period to move to the Fed’s target of 2.0%. The AUD/USD pair will next react to the ADP jobs and ISM manufacturing PMI numbers.
AUD/USD technical analysis
The AUD/USD pair retreated sharply as the US dollar bounced back. It retreated to a low of 0.6485, its lowest swing on April 24th. It has also fallen by over 1.50% from its highest level this week.
The pair has dropped below the 50-period moving average and the Woodie pivot point. Also, the Money Flow Index (MFI) and the Percentage Price Oscillator (PPO) have all pointed downwards.
Therefore, the pair will likely continue falling as sellers target the first support of the Woodie pivot at 0.6450.
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