Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6680.
- Add a stop-loss at 0.6625.
- Timeline: 1-2 days.
Bearish view
- Sell the AUD/USD pair and add a take-profit at 0.6620.
- Add a stop-loss at 0.6680.
The AUD/USD pair drifted upwards sharply after the relatively hawkish statement by the Reserve Bank of Australia (RBA). It rose to 0.6500, much higher than this month’s low of 0.6580.
RBA rate decision
The biggest driver for the AUD/USD pair this week was the RBA decision. As was expected, the central bank left interest rates unchanged at 4.35% for the fifth straight meeting.
The bank maintained its hawkish sentiment as Governor Michele Bullock warned that inflation was still uncomfortably high and that it was above target. She also mentioned that the committee discussed hiking interest rates in this meeting.
As a result, the market now sees the RBA maintaining interest rates at an elevated level throughout the year. Some analysts also anticipate just one rate cut in its meeting in December if inflation falls to near its 2% target.
The next RBA meeting will happen on August 6th. By that time, the RBA will get the next release of the second quarter inflation report in July. These numbers will likely set the tone for what the bank will do. If they come out stronger-than-expected, they will point to a potential rate hike by the RBA.
The RBA decision came a week after the Fed also delivered a hawkish pause. Like the RBA, the Fed is concerned about the stubbornly high inflation rate and has warned that it will be patient before starting to cut.
Some Fed officials have reinforced this view. On Monday, Patrick Harker said that the bank had more room to assess data before starting to cut rates. In his statement on Tuesday, Fed’s James Williams said that the economy was still strong and that the bank needed more data on inflation.
There will be no economic data from the US and Australia on Wednesday. Therefore, traders will continue to reflect on the recent meetings.
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AUD/USD Technical Analysis
The Australian dollar has rebounded sharply in the past few days as traders reflect on the RBA decision. It rebounded above the crucial Woodie pivot point at 0.6625 and moved above the 50-period Exponential Moving Average (EMA).
The pair has also moved slightly above the 23.6% Fibonacci Retracement point at 0.6630 while the Relative Strength Index (RSI) and the MACD have tilted upwards. Therefore, the pair will likely continue rising as buyers target the first resistance at 0.6680. The alternative scenario is where it retreats and retests the pivot point.
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