Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6450.
- Add a stop-loss at 0.6225.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6340 and a take-profit at 0.6250.
- Add a stop-loss at 0.6500.
The AUD/USD pair held steady at its two-month high after the Reserve Bank of Australia (RBA) decided to slash interest rates for the first time since 2020. It rose to a high of 0.6375, its highest point since December 10 and 4.4% above its lowest level this year.
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RBA interest rate cut
The main catalyst for the AUD/USD pair was a decision by the RBA to slash interest rates by 0.25% as most analysts were expecting. It attributed the change of tone to the fact that inflation was easing, with the underlying inflation falling to 3.2% in December. It noted that inflationary pressures were easing at a faster pace than expected and that the headline figure would get to its target rate of 2% soon.
The AUD/USD pair rose because officials cautioned about the speed of future interest rate cuts, citing the strong labor market. A low unemployment rate, in theory, leads to higher inflation since employed people spend more. As such, the pair will react to Thursday’s jobs numbers that will provide more information about the labor market.
Economists are divided on the pace of RBA interest rate cuts. Some analysts expect three more cuts this year, especially if the economy deteriorates further.
The next key AUD/USD news will be the upcoming Federal Reserve minutes. These minutes are important because they will provide more information about the last monetary policy meeting and what officials talked about.
However, these minutes will likely have no major impact on the US dollar because of the recent US inflation data. These numbers showed that the headline Consumer Price Index (CPI) rose to 3% in January. This trend may continue as Donald Trump implements more tariffs on imported goods. In his testimony last week, Jerome Powell insisted that the Fed would only cut rates if inflation falls to near its 2% target.
AUD/USD technical analysis
The daily chart shows that the AUD/USD exchange rate bottomed at 0.6080 earlier this month and then bounced back to 0.6345 this week. It has moved to the major support and resistance point of the Murrey Math Lines.
The pair has moved above the 23.6% Fibonacci Retracement point at 0.6285. It has also jumped above the 50-day moving average and formed an inverse head and shoulders pattern. The Relative Strength Index (RSI) has moved above the neutral point at 50 and is pointing upwards.
Therefore, the pair will likely continue rising as bulls target the 50% Fibonacci Retracement point at 0.6515.
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