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The pair will likely resume the bearish trend as sellers target the next key psychological level at 0.6800.
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6800.
- Add a stop-loss at 0.7000.
- Timeline: 1 day.
Bullish view
- Set a buy-stop at 0.6965 and a take-profit at 0.7048.
- Add a stop-loss at 0.6880.
The AUD/USD price rebounded slightly as the recent US dollar rally took a breather. It rose to a high of 0.6963, which was the highest point since August 17. That price was about 1.17% from its lowest level this week.
US dollar rally takes a breather
The Australian dollar has pulled back recently amid a sustained US dollar comeback. The closely watched dollar index managed to move from this month’s low of $104.3 to over $109.30. This rally accelerated after the Federal Reserve published the minutes of the last meeting. These minutes showed that the bank was committed to continuing with the hiking process.
However, data published recently could see the bank reducing the pace of tightening. For example, on Tuesday, numbers released by S&P Global showed that the services PMI declined to 44.1 in August as demand waned and cost of doing business rose. A PMI reading of 50 and below is usually a sign that an industry is contracting.
Meanwhile, new home sales declined by 12.6% in July to 511k. This decline was worse than the median estimate of 575k. These numbers, together with the pending and existing home sales, imply that the housing sector is cooling down.
The AUD/USD price has also been in a downward trend because of the weakening Chinese economy. On Monday, the country’s central bank decided to slash interest rates in a bid to stimulate the economy. It slashed the five-year prime mortgage rate to 4.3%.
The deteriorating Chinese economy will have a negative impact on Australia. For one, analysts expect that iron ore prices will drop by half by next year because of the deteriorating housing sector in China. Analysts also expect that the Chinese economy will have a slower growth than the 5.5% that the government expects.
AUD/USD forecast
The AUD/USD slipped to a low of 0.6865 on Tuesday and then bounced back slightly after the weak US data. This price was an important one since it was the lowest point since August 5.
It has struggled moving below the support level several times since Monday. The pair is slightly above the 38.2% Fibonacci Retracement level while the MACD has tilted upwards. The pair will likely resume the bearish trend as sellers target the next key psychological level at 0.6800.
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