Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6600.
- Add a stop-loss at 0.6500.
- Timeline: 1-2 days.
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6500.
- Add a stop-loss at 0.6600.
The AUD/USD exchange rate dropped to its lowest point since May 1st and then bounced back after the latest Australian inflation data and Federal Reserve interest rate decision. It slipped to a low of 0.6480, lower than July’s high of 0.6800.
Australia inflation data and Fed decision
The AUD/USD pair retreated after the second quarter Australia inflation data. The headline consumer price index (CPI) rose from 3.6% in Q1 to 3.8% in Q2, in line with expectation.
On the positive side, the trimmed mean CPI dropped from 4.0% to 3.9% YoY and from 1.0% to 0.8% MoM. The weighted mean CPI also fell from 4.4% to 4.1% and 1.1% to 0.8%. These numbers led many analysts to predict that the Reserve Bank of Australia (RBA) will point to interest rate cuts earlier than expected.
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Bedore their release, the RBA had hinted that it may hold rates steady for a long time. In the last monetary policy meeting, the committee also deliberated hiking rates since inflation has remained above the 2% level for longer than expected. The bank will hold its next interest rate decision on August 6.
Meanwhile, in the United States, the Federal Reserve decided to leave interest rates unchanged as was widely expected. In the statement, the committee noted that it was attentive to both sides of the dual-mandate in terms of inflation and the labor market.
In this, the officials have pointed to the softening labor market, where the unemployment rate has risen to 4.1%. In his press conference, Jerome Powell noted that a rate cut in September was now on the table.
The Fed will use Friday’s jobs numbers and the next inflation data to assess the state of the economy. It will then signal its next moves at the Jackson Hole Symposium in August.
AUD/USD technical analysis
The AUD/USD pair continued its downward trend on Wednesday after the Fed decision and Australian inflation data. It dropped to a low of 0.6478 and then quickly bounced back. It remains below the 50-day and 25-day Exponential Moving Averages (EMA).
On the daily chart, the pair has formed a hammer pattern, a popular reversal sign. Therefore, the pair will likely bounce back as traders wait for the upcoming NFP data and RBA interest rate decision. The rebound could see the pair rise to the psychological point at 0.6600.
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