Bullish View
- Buy the AUD/USD pair and set a take-profit at 0.6250.
- Add a stop-loss at 0.6150.
- Timeline: 1-2 days.
Bearish View
- Sell the AUD/USD pair and set a take-profit at 0.6150.
- Add a stop-loss at 0.6250.
The AUD/USD pair continued its strong sell-off as investors embraced a risk-off sentiment by moving to the safety of the US dollar. It plunged to a low of 0.6180, its lowest point since 2022 and a few pips above its 2020 lows.
The AUD/USD’s plunge coincided with the uptrend of the US dollar index, which soared to $109 as the greenback surged against most currencies. This rally is mostly because investors anticipate that the Fed will be more hawkish as Donald Trump’s policies start to take shape.
Trump has made several promises, including immigration, tariffs, and tax cuts. He wants to maintain his 2017 tax cuts and introduce newer ones. Such a move, if passed into law, will lead to higher inflation in the longer term.
The most notable move that will stir inflation will be the upcoming tariffs, which Trump hopes will help to to reduce the trade deficit. The reality, is that American importers will increase prices since it will become incredibly costly to manufacture in the US.
Further, the AUD/USD pair has retreated because of the rising odds that the Reserve Bank of Australia (RBA) will embrace a dovish tone this year. Unlike other central banks, the RBA maintained a highly hawkish tone as it left interest rates unchanged in 2024. With the economic growth slowing, there are chances that the RBA will start cutting interest rates this year.
The Federal Reserve, on the other hand, has hinted that it will be more hawkish this year since the US economy is doing well. It has hinted that it will deliver just two cuts this year, lower than the previous expected 4.
This week’s US jobs numbers will provide more information about the labor market. Economists expect the data to show that the unemployment rate remained at 4.2% in December.
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AUD/USD technical analysis
The daily chart shows that the AUD/USD pair has been in a strong bearish trend in the past few months. It recently dropped and moved below the important support at 0.6363, its lowest level in April and August last year.
The pair has remained below the 50-day and 20-day Exponential Moving Averages (EMA), a sign that bears are in control. It has also formed a falling wedge chart pattern, a popular reversal sign.
Therefore, the pair may bounce back as bulls target the next point at 0.6250. A drop below the support at 0.6180 will invalidate the bullish view.
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