Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6550.
- Add a stop-loss at 0.6700.
- Timeline: 1-2 days.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6700.
- Add a stop-loss at 0.6550.
The AUD/USD exchange rate plunged to its lowest level since August 16. It dropped from a high of 0.6935 on September 30th to 0.6630 as the US dollar strength gained steam.
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Risk-on sentiment
The AUD/USD pair continued its strong downward trend as investors embraced a risk-on sentiment ahead of the US general election.
The most recent data in the prediction market shows that Donald Trump has a wide margin against Kamala Harris.
Traditional polls also show that the race is virtually tied in most battleground states in the country.
Therefore, while it is still too early to predict, there is a rising possibility that Donald Trump will go back to the White House. Trump has made several pledges that could push more people to safe havens.
For example, he has pledged to implement large tariffs, which he hopes will help him fund his tax cuts. His pledge is for a universal tariff on all imports and 60% from China, a move that will lead to a trade war and potentially, inflation.
These fears, together with the view that the Federal Reserve will not be as dovish as previously thought, explains why the US dollar is on track for having the best month in over two years.
Other risky assets have also dropped sharply as the US election nears. The Dow Jones index fell by 425 points on Wednesday, while the S&P 500 and Nasdaq 100 indices fell by 0.92% and 1.56%.
The next key economic data to watch will be the flash manufacturing and services PMI numbers from the US. Economists expect these numbers to show that the PMI retreated to 47.5 and 55.0, respectively.
The US will also release the latest building permits and housing starts numbers, which will provide more hints about the next actions by the Federal Reserve.
AUD/USD technical analysis
The AUD/USD exchange rate continued its downward trend, reaching a low of 0.6622, its lowest level since August 12.
It has dropped by over 4.50% from its highest level in September as the greenback surge gained steam.
The pair has also dropped slightly below the important support level at 0.6630, its lowest level on September 10th.
It has also moved inside the Ichimoku cloud indicator, while the Average Directional Index (ADX) has pointed upwards, reaching a high of 21, its highest level since August 20th.
Therefore, the AUD/USD pair will likely continue falling as sellers target the next key support at 0.6550.
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