Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6870.
- Add a stop-loss at 0.6700.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6780 and a take-profit at 0.6700.
- Add a stop-loss at 0.6870.
The AUD/USD pair has stalled at an important resistance level as investors assessed the next actions by the Federal Reserve and the Reserve Bank of Australia. The pair rose to a high of 0.6812, its highest point since January this year ahead of key economic data from the US.
RBA and Fed actions
The AUD/USD pair has moved sideways this week as signs about a potential divergence between the Fed and the RBA continued.
A report by Australia’s statistics agency showed that the monthly CPI indicator slowed to 3.5% in July from the previous 3.80%. Whale this decline was welcome, it was bigger than the expected 3.40%, meaning that Australia has an inflation problem.
Therefore, there is a likelihood that the Reserve Bank of Australia (RBA) will maintain a hawkish tone since inflation has remained stubbornly higher this month.
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The risk for holding rates higher for longer is that they will lead to weaker economic growth as borrowing costs remain at an elevated level. A report on Wednesday showed that construction work done in the second quarter rose by 0.1%, missing the consensus estimate of 0.8%.
There are other signs that the Australian economy is softening. For example, the prices of key commodities the country exports like iron ore have dropped sharply this year.
Therefore, with the RBA expected to hold rates higher for longer, there are signs that the Federal Reserve will start cutting as soon as September.
The US will publish the second reading of Q2 GDP data on Thursday followed by the Personal Consumption Expenditure (PCE) inflation report on Friday.
These are important numbers but seem secondary to the Fed’s focus now that it has shifted its focus to the country’s jobs numbers.
AUD/USD technical analysis
The AUD/USD pair has been stuck at an important resistance point this week. It has struggled to move above the key resistance point at 0.6800, where it failed to cross in July.
Therefore, there is a sign that the pair has formed a double-top chart pattern, a popular bearish sign.
On the positive side, the AUD/USD exchange rate’s Relative Strength Index (RSI) has risen and is approaching the overbought point. The MACD indicator has continued rising.
Therefore, the pair will likely remain in this range on Thursday. A clean break above the resistance at 0.6800 will point to more upside to 0.6870, its highest point in December last year. The alternative scenario is where the pair pulls back and retests the support at 0.6700.
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