Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6100.
- Add a stop-loss at 0.5950.
- Timeline: 1-2 days.
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.5950.
- Add a stop-loss at 0.6100.
The Australian dollar crashed to its lowest level since March 2020 as investors rushed to the safety of the US dollar as geopolitical risks rose. The AUD/USD pair plunged to a low of 0.5988, down by over 13% from its December highs.
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Australian dollar crashes
The AUD/USD pair plunged after Donald Trump announced his ‘reciprocal’ tariffs on imported goods brought to the US. These tariffs will apply to all goods shipped to the country from all countries.,
Australia was one of the luckiest major countries as the US will apply only the minimum tariff figure of 10%. However, the US will also levy China a 34% tariff on top of the other levies Trump announced earlier this year.
The Australian dollar is often seen as a proxy for China because of the large volumes of trade that it sells to the country. Its top exports are iron ore, petroleum gas, coal, and other minerals. Therefore, signs that the Chinese economy is slowing are often bearish thing for the Aussie.
The AUD/USD pair also dropped after Jerome Powell, the head of the Federal Reserve warned about the US economy as he ruled out interest rate cuts. In a statement, he said that the US risked moving into stagflation, a period characterized by high inflation and slow economic growth.
Powell commented this after Trump pressured him to cut interest rates as the stock market plunged.
Looking ahead, the top catalyst for the AUD/USD will be from the US, where Trump and his officials may signal willingness to negotiate with other countries. Also, the pair will react to the upcoming US inflation data and Federal Reserve minutes.
AUD/USD technical analysis
The AUD/USD exchange rate crashed to a low of 0.5988, its lowest level in years. On the daily chart, it crashed below the crucial support level at 0.6087, its lowest level on February 3.
The pair has crashed below all moving averages. Also, all oscillators like the Relative Strength Index (RSI) and the MACD indicators have all pointed downwards, with the RSI testing the oversold level.
The AUD/USD pair also retested the extreme overshoot of the Murrey Math Lines tool. Therefore, the most likely scenario is where it bounces back to the ultimate support at 0.6100. Such a rebound would be a dead cat bounce, where an asset in a freefall has a temporary bounce and then resumes the downtrend.
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