Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6713.
- Add a stop-loss at 0.6600.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6645 and a take-profit at 0.6580.
- Add a stop-loss at 0.6725.
The AUD/USD exchange rate moved sideways even after odds of a Reserve Bank of Australia (RBA) rate hike rose. The pair was trading at 0.6655, where it has been stuck this week as focus shifts to the upcoming US economic data.
RBA rate hike odds rise
The RBA left interest rates unchanged in its recent interest rate decision and signalled that it was still concerned about Australia’s inflation. In its statement, the bank also hinted that it discussed about hiking interest rates.
Odds of a rate hike rose after the Australian Bureau of Statistics (ABS) published strong inflation report. The data revealed that the headline Consumer Price Index (CPI) rose from 3.6% in April to 4.0% in May, beating the consensus estimate of 3.80%.
That report meant that the country’s inflation was not moving in the right direction towards the bank’s target of 2.0%. Therefore, analysts have boosted the odds of a rate hike in the coming meeting in August. That meeting will come after the RBA publishes its second-quarter inflation report.
The AUD/USD pair reacted mildly to the mixed economic data from the United States. Data revealed that new home sales retreated from 698k to 619k in May, missing the estimated 636k. New home sales dropped by 11.3% to 3.59 million.
The next important data to watch will be from the United States, which will publish the final estimate of Q1 GDP data. Ecomomists expect the report to show that the economy expanded by 1.3% in Q1 after growing by 3.4%. This being the third estimate, its impact on the dollar will be muted.
The US will then release the Personal Consumption Expenditure (PCE) data on Friday. Economists expect the report to reveal that the Fed’s favourite inflation gauge remained solidly above the 2% target in May.
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AUD/USD Technical Analysis
The AUD/USD exchange rate has moved sideways in the past few weeks. It has constantly remained slightly above the 25-day and 50-day Exponential Moving Averages (EMA). Also, it has risen above the key support at 0.6580, its lowest swing on June 7th.
Importantly, the pair has formed an inverse head and shoulders chart pattern, which is a popular bullish sign. It has also formed a bullish flag pattern. The Relative Strength Index (RSI) has moved slightly above the neutral point.
Therefore, the pair will likely remain in this range on Thursday and then have a bullish breakout. The key resistance level to watch will be at 0.6713.
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