Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6850.
- Add a stop-loss at 0.6700.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6770 and a take-profit at 0.6700.
- Add a stop-loss at 0.6850.
The Australian dollar has risen for ten consecutive days, helped by the relatively weaker US dollar and the hopes that the RBA will maintain a hawkish tone. The AUD/USD pair rose to 0.6800, its highest level since January.
Hawkish RBA vs Fed
The Australian dollar has jumped sharply amid high expectation that the Reserve Bank of Australia (RBA) will either leave interest rates higher for longer or even hike them.
Recent data showed that Australian inflation has remained higher than expected. The monthly consumer price indicator rose by 4% YoY, beating the expected 3.8%. Also, the closely-watched trimmed mean inflation data rose to 4.4%, higher than the RBA target of 2.0%.
The most recent RBA minutes showed that officials deliberated the merits and demerits of hiking interest rates to curb this inflation. Therefore, the next Australian inflation numbers will help traders and economists predict the next RBA action.
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On the other side, economists expect that the Federal Reserve could start cutting rates as soon as in its September meeting because of the recent economic data.
Data released this week showed that the labor market softened in June as the unemployment rate rose to 4.1%, a big increase after it bottomed at 3.5% in July last year. Wage growth slowed as the economy created over 200k jobs.
Further data by companies like PepsiCo and Conagra Brands confirmed that the economy was softening. PepsiCo, maker of popular brands like Frito Lay and Mountain Dew, said that demand from Americans was a bit weaker than expected in the first quarter.
Last week, inflation numbers showed that prices dropped to 3.0% in June while the core CPI moved to 3.2%. Therefore, if inflation continues falling, analysts believe that the Fed could start cutting in September. Jerome Powell and Mary Daly will likely talk about these in their speeches later on Monday.
AUD/USD technical analysis
The Australian dollar has been in a strong bull run after bottoming at 0.6363 in May. It recently rose above the key resistance point at 0.6712, its highest point on May 16th. It has also risen above 0.6662, the neckline of the inverse head and shoulders pattern.
The AUD/USD pair also formed a golden cross pattern in June as the 200-day and 50-day moving averages crossed each other. Also, the Average Directional Index (ADX) has moved above 23, signaling that the trend is strong.
Therefore, the pair will likely continue rising as buyers target the key resistance point at 0.6850. The alternative scenario is where the pair pulls back as bulls start taking profits. If this happens, it could retest the support at 0.5612.
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