There is a likelihood that the pair will resume the bearish trend as bears target the key psychological level at 0.6750.

Bearish View

• Set a sell-stop at 0.6800 and a take-profit at 0.6700.
• Add a stop-loss at 0.6800.
• Timeline: 1-2 days.

Bullish View

Set a buy-stop at 0.6850 and a take-profit at 0.6900.

Add a stop-loss at 0.6800.

The AUD/USD price is holding steady after last week’s crash. The pair is trading at 0.6815, which is significantly higher than last week’s low of 0.6767. This price is about 6.46% below the highest point in June this year.

RBA Decision Ahead

The Australian dollar has been in a strong bearish trend in the past few weeks even after the Reserve Bank of Australia (RBA) turned extremely hawkish. In June, the bank caught many investors by surprise as it decided to hike interest rates by 0.50%. This was the biggest rate hike by the bank in decades.

The next key catalyst for the AUD/USD will be the upcoming interest rate decision that is scheduled for Tuesday. Analysts expect that the bank will intensify its battle against inflation by hiking interest rates by 0.50%. Most importantly, they believe that the bank will signal that it will deliver a similar hike in August.

These rate hikes have had an impact on the Australian economy. For example, the cost of government borrowing has risen substantially, with the yield of the 10-year rising to 3.47%. Similarly, consumers are paying more money for mortgages.

Banks like CBA, NAB, and Westpac have hiked the cost of fixed mortgages. According to RateCity, over 70 lenders have boosted their rates. This is affecting the economy, with data published on Monday showing that building approvals dropped sharply in May.

In a recent statement, RBA’s Philip Lowe warned that the country’s inflation will keep rising in the coming months. The bank expects that inflation will rise to 7% by end of this year. This is a significantly higher level considering that the bank has an inflation target of 2.0%.

The AUD/USD pair will also experience some low volume on Monday since American markets will be closed for the Independence Day celebration.

AUD/USD Forecast

The four-hour chart shows that the AUD/USD pair formed a symmetrical triangle pattern last month. It then managed to have a bearish breakout last Friday as the dollar strength continued. It fell to a low of 0.6762, which was the lowest level this year.

The pair has now pulled back as investors buy the dips. It remains below the 25-day and 50-day moving averages and the lower side of the triangle pattern.

Therefore, despite the pullback, there is a likelihood that the pair will resume the bearish trend as bears target the key psychological level at 0.6750.

There is a likelihood that the pair will retreat and retest the lower side of the channel at 0.7175.

Bearish View

• Sell the AUD/USD pair and set a take-profit at 0.7150.
• Add a stop-loss at 0.7245.
• Timeline: 1 day.

Bullish View

• Set a buy-stop at 0.7235 and a take-profit at 0.7300.
• Add a stop-loss at 0.7160.

The AUD/USD pair has pulled back in the past few days as the US dollar crawls back and as investors wait for the upcoming interest rate decision by the Reserve Bank of Australia (RBA). The pair also retreated slightly after the mild jobs numbers from the United States.

RBA Interest Rate Decision

The AUD/USD has pulled back slightly as investors wait for the upcoming interest rate decision by the RBA. Analysts believe that the bank will continue hiking the hiking cycle that it started in May this year when it hiked by 0.25%.

The base case is that the RBA will hike interest rates by 0.25% and push the base lending rate to 0.60%. The most important catalyst for the pair will be the bank’s statement on the number of rate hikes that it will make later this year. Most analysts expect that it will signal that it will have a few more hikes in a bid to fight inflation.

The RBA meeting comes at an important time for the global economy. Last week, Jamie Dimon of JP Morgan warned that the global economy faces a hurricane in the coming months. He cited the rising cost of energy and food prices. In the same week, Elon Musk of Tesla said that he felt super bad about the American economy. As such, he hinted that Tesla would slash its workforce by about 10%.

The AUD/USD pair also declined after the latest American jobs numbers. The data revealed that the country’s economy added over 390k jobs in May while the unemployment remained close to its record low. At the same time, wages held quite well.

In addition to the RBA decision, the next key data to watch will be the upcoming US inflation numbers. Analysts will be watching whether inflation is showing signs of topping.

AUD/USD Forecast

The four-hour chart shows that the AUD/USD pair formed an evening star pattern last week. In price action analysis, this pattern is usually a bearish sign. The pattern happened when the pair rose to the highest level since the first week of May.

Now, the pair has moved slightly below the 61.8% Fibonacci Retracement level. The pair has also formed an ascending channel pattern that is shown in black. It remains slightly above the 25-day and 50-day moving averages. Therefore, there is a likelihood that the pair will retreat and retest the lower side of the channel at 0.7175.

Today’s pivotal point is likely to be 0.7083.

My last signal from 27^th April produced a profitable long trade from the bullish pin bar which rejected the support level I had identified at 0.7082.

Today’s AUD/USD Signals

Risk 0.75%

Trades may only be entered before 5pm Tokyo time Wednesday.

• Go short following a bearish price action reversal on the H1 time frame immediately upon the next touch of 0.7183.
• Place the stop loss 1 pip above the local swing high.
• Move the stop loss to break even once the trade is 20 pips in profit.
• Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.

Long Trade Ideas

• Go long following a bullish price action reversal on the H1 time frame immediately upon the next touch of 0.7082 or 0.7006.
• Place the stop loss 1 pip below the local swing low.
• Move the stop loss to break even once the trade is 20 pips in profit.
• Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.

The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.

AUD/USD Analysis

I wrote in my previous piece on this currency pair on 27^th April that the price was still making lower lows and lower highs, which suggested the medium-term bearish trend was still in force.

Therefore, I was looking for a bearish reversal at 0.7235, which would present an attractive short trade entry point.

I was correct about the primary direction of the day, as the price fell over the day and reached as low as the support level which I had identified at 0.7082 shortly before the Tokyo close, but the price gave a nice short-term long trade from that level when it was reached, signalling its intention to move higher with a bullish pin bar on the hourly chart.

The price now is back where it was one week ago. The RBA just announced a 0.25% rate hike which some analysts had been expecting, but which surprised many who had been expecting a hike of only 0.15%. This caused a short-term bullish price spike of approximately 1%, but this quickly ended within 45 minutes, with the price retracing back to its consolidation area just above the nearest support level at 0.7082.

It seems clear that this support level at 0.7082 is going to be today’s pivotal point. The price is clearly within a long-term bearish trend, so the highest probability setup that might emerge today would probably be a short trade entry following the price getting established below 0.7082. This would likely trigger a further fall to the 0.7006 area which could be strong long-term support.

On the other hand, if 0.7082 holds as support, we will probably see the price rise over the short term.

Regarding the USD, there will be a release of JOLTS Job Openings data at 3pm London time. There is nothing of high importance due today concerning the AUD.

The pair will likely keep falling ahead of the RBA decision as bears target the support at 0.7000.

Bearish View

• Sell the AUD/USD and a take-profit at 0.7200.
• Add a stop-loss at 0.7140.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 0.7100 and a take-profit at 0.7200.
• Add a stop-loss at 0.7035.

The AUD/USD pair’s downward trend continued on Monday morning as investors repositioned for the upcoming interest rate decisions by the Reserve Bank of Australia (RBA) and the Federal Reserve. The pair is trading at 0.7060, which is close to its lowest level last week. It has collapsed by almost 8% from the highest point in April.

Action-Packed Week

The AUD/USD pair will have a busy week as the Fed and the RBA publish their interest rate decision. The RBA is expected to sound a bit hawkish when it completes its meeting on Tuesday. The bank will likely leave its interest rate unchanged and then hint that it will deliver its first interest rate hike in June.

The decision will come a few days after the Australian Bureau of Statistics (ABS) showed that the country’s consumer inflation jumped. The headline CPI rose by 5.1% in Q1, which was the highest level in 20 years. It was also significantly higher than the RBA target of 2.0%.

On Wednesday, the ABS will publish the preliminary consumer inflation data. Analysts believe that the country’s sales declined by 0.5% in March as prices jumped. Retail sales are so important because they provide guidance of consumer spending.

The Fed, on the other hand, will complete its monetary policy meeting on Wednesday. Economists expect that the Fed will deliver a more hawkish interest rate hike. Going by the recent statements by Fed officials, the rate hike will be 0.50%. Most importantly, the bank will likely start its quantitative tightening (QT) policy by reducing its balance sheet by $75 billion per month.

The AUD/USD will also react to the latest non-farm payrolls (NFP) data that will come out on Friday. Economists expect that the economy added 361k jobs in April while the unemployment rate fell to 3.5%.

AUD/USD Forecast

The AUD/USD pair has been in a strong bearish trend in the past few days. Along the way, the pair has formed a descending channel pattern that is shown in orange. It is now slightly above the lower side of the channel. At the same time, the pair has moved slightly below the 25-day moving average while the Stochastic Oscillator and the Relative Strength Index (RSI) have pointed downwards.

Therefore, the pair will likely keep falling ahead of the RBA decision as bears target the support at 0.7000. It will then likely retest the upper side of the channel towards or after the RBA decision.

Aussie reaches new 9-month high price.

My last signal from 22^nd March was not triggered, as there was no bearish price action when each of the resistance levels which I had identified were first reached.

Today’s AUD/USD Signals

Risk 0.75%

Trades must be taken prior to 5pm Tokyo time Wednesday.

• Go short following a bearish price action reversal on the H1 time frame immediately upon the next touch of 0.7636 or 0.7649.
• Put the stop loss 1 pip above the local swing high.
• Adjust the stop loss to break even once the trade is 20 pips in profit.
• Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.

Long Trade Ideas

• Go long following a bullish price action reversal on the H1 time frame immediately upon the next touch of 0.7569, 0.7548, or 0.7536.
• Put the stop loss 1 pip below the local swing low.
• Adjust the stop loss to break even once the trade is 20 pips in profit.

• Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.

The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.

AUD/USD Analysis

I wrote in my previous piece on this currency pair on 22^nd March that the recent price rise seemed to have run out of momentum, so I was looking for short trades in this currency pair that day. I thought that s good swing trade could set up if the price got back to test 0.7430 and failed there.

This call was enough to keep anyone out of trouble, but I was quite wrong about direction, with the day being a strong up day after the price broke out above 0.7430.

The technical picture is now much more bullish, with the price breaking upwards very strongly on high volatility immediately after the RBA’s Rate Statement was released, to trade at a new 9-month high price. The Australian Dollar is unquestionably the strongest major currency right now.

This initial bullish spike, at the time of writing, is running into the round number at 0.7600 which might halt its advance, but it is too early to say.

This upwards movement right now is driven not by the RBA’s Cash Rate, which remained unchanged as expected at 0.1%, but by the Rate Statement, in which the Bank continues to see a tightening labour market and rising earnings, which implies that bearish pressure on the Bank to begin to look to hike rates is rising.

This market is ripe for day traders to trade long on shorter time frames, buying dips as they turn to rise, while being careful to take profit before the rise runs out of steam. It might go all the way to the next resistance level at 0.7636, or even 0.7650.

Over the medium-term, I see a retracement to 0.7569 as likely to provide the best potential entry point for a long trade if there is bullish bounce there in the price action.Concerning the USD, there will be a release of ISM Services PMI data at 3pm London time. There is nothing of high importance due today regarding the AUD.

The outlook of the pair is neutral at this stage. 

Bearish View

• Sell the AUD/USD and set a take-profit at 0.7445.
• Add a stop-loss at 0.7540.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 0.7520 and a take-profit at 0.7600.
• Add a stop-loss at 0.7450.

The AUD/USD pair moved sideways on Monday morning as investors refocused on the upcoming interest rate decision by the Reserve Bank of Australia (RBA). The pair is trading at 0.7500, where it has been in the past few days. This price is about 7.7% above the year-to-date low.

RBA Decision Next

The Australian dollar has done well in the past few months, helped by the dramatic increas in commodity prices. Most commodity prices that Australia exports like natural gas, coal, and copper have all increased as the crisis escalates.

The currency has also done well as investors price in a more aggressive RBA. In the past meetings, the RBA has said that it will continue leaving interest rates unchanged at 0.10% until real inflation moves to between 2% to 3%.

Therefore, analysts expect that the bank will follow the steps of other major central banks that have also started to hike interest rates. The Bank of England (BOE) has made three rate hikes while the Fed has made its first 0.25% hike.

And many Fed officials are now supportive of more hikes even as signs of recession rose. Last week, the yield curve inverted for the first time in years. In a statement during the weekend, Mary Daly of San Francisco Fed said that she was supportive of a 0.50% rate hike in May.

Therefore, the next major catalyst of the AUD/USD will be the upcoming RBA decision that comes on Tuesday. There is a likelihood that the bank will change its tone during the meeting.

The pair was also unchanged after the latest Australian retail sales numbers. According to the Australian Bureau of Statistics (ABS), retail sales held steady in February even as inflation kept rising.

AUD/USD Forecast

The AUD/USD pair has been in a strong bullish trend in the past few months. Recently, however, this price action has faded and the pair has been in a tight range. As a result, the price is along the 25-day moving average and the middle line of the Donchian Channels. The Relative Strength Index (RSI) has moved to the neutral level.

Therefore, the outlook of the pair is neutral at this stage. However, there is a likelihood that it will have a minor bearish breakout and retest the support at 0.7442. On the flip side, a move above the support at 0.7537 will mean that there are more buyers.

On Wednesday, the  Australian Bureau of Statistics reported the preliminary retail sales figure, which showed that retail sales dropped by 4.2 percent (month-to-month) in September, after climbing by 3.2 percent on the previous month.

Last week, the Australian Dollar went down by 3.59 percent against the US dollar, breaking a two-week gaining streak.

The Reserve Bank of Australia deputy governor Guy Debelle expressed his concerns about the value of the Australian dollar on Tuesday, going against the analysts’ expectations, who thought that he wasn’t going to comment on the issue given the belief that the Australian Dollar late performance has been mainly linked with the US dollar weakness. Last week the US dollar recovered against a bundle of its main competitors, gaining 1.85 percent and recovering from the previous week’s losses.

Debelle highlighted that a lower exchange rate would benefit the economy, which the markets interpreted as opening up the possibility of intervening in the foreign exchange market to lower the Australian Dollar value, something similar to what the Swiss National Bank has been doing to stop the appreciation of the Franc.

The Deputy Governor also left the doors open for further interest rate cuts, which implies that the RBA eventually may consider imposing negative cash rates, though he pointed out that there is still room to bring down the cash rates without entering into the negative territory. About this alternative Debelle commented that the evidence is mixed concerning its effects on the exchange rate.

“The empirical evidence on negative rates is mixed. In the short-term, they can contribute to a lower exchange rate. In the medium term, the effectiveness can wane including through the effect on the financial system,” he said, adding that it can encourage households to save more, especially in an environment where they’re inclined to do so.

The Reserve Bank of Australia’s monetary policy committee is expected to meet next week and announce its monetary policy decision afterward. Until then, it may not be clear whether they’re willing to consider this alternative or not.

Last week the markets got important information about the state of the Australian economy. On Tuesday, the Commonwealth Bank of Australia together with market economics released the preliminary Commonwealth Bank Services PMI for September, which stood at 50, showing an expansion of the services sector. In August the indicator stood at 49, signaling a contraction in the sector, while the analysts foresaw it to be at 48.4. The Manufacturing PMI, which stood at 55.5, showed a faster expansion of the manufacturing sector, given the 53.6 of the previous month. Analysts foresaw a contraction, as they expected it to be at 48.3.

The composite PMI stood at 50.5, showing an expansion of the business sector. The previous month’s figure signaled a contraction, as it stood at 49.4. On Wednesday, the  Australian Bureau of Statistics reported the preliminary retail sales figure, which showed that retail sales dropped by 4.2 percent (month-to-month) in September, after climbing by 3.2 percent on the previous month.

On Friday, the Australian Bureau of Statistics published that the preliminary trade balance for August registered a surplus at $4,294 million, after being at $4607 million in the previous month. Imports fell by 7 percent after climbing 7 percent in July, while exports dropped by 2 percent after falling by 4 percent in the previous month.

Some investors are bullish on the Australian dollar, even though there are still concerns regarding the Reserve Bank of Australia’s Bond Purchase Program. 

The Reserve Bank of Australia announced its decision to keep the interest rates unchanged at 0.1 percent, leaving them at a historical low and in line with analysts’ expectations.

Reserve Bank Governor Philip Lowe announced that the governing board is not planning to raise cash rate levels over the next three years. He also announced the governing board’s decision to leave its Bond Purchase Program under review, highlighting its willingness to do more if it’s required.

Economic Calendar

Beyond the RBA’s announcement, this week has been somewhat slow in terms of the economic calendar. On Monday, the University of Melbourne reported that securities inflation went up by 1.4 percent (year-on-year) in November, after climbing by 1.1 percent in the previous month. In monthly terms, it went up by 0.3 percent, after shrinking by 0.1 percent in October.

The Australian Industry Group reported that the Australian manufacturing sector expanded at a slower pace in November, as the manufacturing index stood at 52.1 after being at 56.3 in the previous month. The Commonwealth Bank Manufacturing PMI, released by both the Commonwealth Bank of Australia and Markit Economics, signaled an expansion of the banking sector at 55.8 in November, though lower than expectations of 56.1.

The RBA reported that private sector credit went up by 1.8 percent in October (year-on-year), after gaining 2.4 percent in the previous month. In monthly terms, the figure remained unchanged.

On Tuesday, the Australian Bureau of Statistics reported that building permits rose by 3.8 percent in October (month-on-month) after an increase of 16.2 percent in the previous month and higher than predictions of a 3 percent contraction. In yearly terms, building permits went up by 14.3 percent, after climbing by 8.8 percent in the previous month.

Australian Dollar Languishes

So far this week, the Australian currency has had a poor performance, losing by 0.49 percent against the US dollar and breaking a four-week gaining streak. November ended up being a good month for the Aussie, in which it gained 4.54 percent against the greenback and recovered from a two-month losing streak.

The late volatility of the Aussie can be linked to the most recent news from China. The Asian country reported that its manufacturing sector expanded in November, as the Manufacturing PMI went up to 52.1 and above expectations of 51.5. Similarly, the services sector expanded, with the non-manufacturing PMI standing at 56.4, also higher than expected.

This ended up being good news for the Aussie, which opened the week in positive territory, though posting mild gains. Nevertheless, the Aussie’s early advances were undermined by the US government’s decision to add two Chinese firms to its defense blacklist, further affecting the already complicated trade relationship.

Some investors are bullish on the Australian dollar, even though there are still concerns regarding the Reserve Bank of Australia’s Bond Purchase Program. An example of this is Morgan Stanley’s expectation that the upcoming global economic recovery will end up benefiting risky currencies like the AUD.

“Combinations of strong growth, ample global liquidity, and a solid fundamental outlook for risk assets suggest that risk-correlated currencies should continue to see tailwinds,” reported an analyst at Morgan Stanley.

Nevertheless, this possible trend could be undermined by the Reserve Bank of Australia, as the excessive appreciation of the currency could end up being prejudicial for the Australian economy.

Economy Currently on Path Towards Recovery

According to the most recent data, the Australian economy has been struggling with the consequences of the coronavirus pandemic. The latest gross domestic product figures, released at the beginning of September, showed that the economy contracted more than expected, shrinking by 7 percent (year-on-year) after decreasing by 0.3 percent in the second quarter. In yearly terms, the figures followed the same trend, falling more than expected at -6.3 percent, after climbing by 1.6 percent in the first quarter.

All eyes are now on the upcoming national accounts report, which is set to be released by the Australian Bureau of Statistics on Wednesday. The surveyed analysts expect a 2.6 percent expansion (quarter-on-quarter), as well as a yearly 4.4 percent contraction.

Inflation is currently under control, as the latest Consumer Price Index figure stood at 0.7 percent (year-to-year), in line with polled analysts’ expectations and higher than the previously reported -0.3 percent. Despite being congruent with analysts’ forecasts, the figure is still way behind the Reserve Bank of Australia’s target, which is currently a 2-3 percent range.

On the other hand, the latest unemployment rate was better than expected at 7.0 percent in October, though an increase from the previous month’s 6.9 percent.

In its latest release, the Reserve Bank of Australia reported that data “have generally been better than expected” and that Australia is currently on the path towards an “uneven and drawn-out” economic recovery. This recovery is also heavily dependent on policy support which, given the latest inflation and unemployment data, will be needed for some time.

Upcoming Events

• Tomorrow, the RBA’s governor Phillip Lowe will be giving a speech at 00:00 GMT.

• Also tomorrow, the Australian Bureau of Statistics will release the gross domestic product figures for the third quarter.

• On Thursday, the Australian Bureau of Statistics will report October’s trade balance, followed by exports and imports of goods and services figures.

• Retail sales figures will be released by the Australian Bureau of Statistics on Thursday.