The pair will likely resume the downward trend as bears target the support at 0.6828.
Bearish View
- Sell the AUD/USD pair and set a take-profit at 0.6828.
- Add a stop-loss at 0.7050.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 0.7025 and a take-profit at 0.7100.
- Add a stop-loss at 0.6870.
The AUD/USD pair rose slightly as investors reflected on multiple events and data points. It rose to a high of 0.7016 after the Federal Reserve delivered a hawkish decision. This price is about 5% below the highest point this month.
Fed Decision
The Fed concluded its two-day meeting on Wednesday and did what most analysts were expecting. The FOMC committee decided to hike rates by 0.75%, the highest increase since 1994.
In a statement, the bank lamented that the Russian invasion of Ukraine had led to substantial challenges in the economy. It has led to higher oil and gas prices, which have pushed inflation to the highest level in over 40 years.
The Fed now expects to continue hiking in the coming months. Precisely, it expects to hike rates by 0.75% in the upcoming two meetings.
Still, investors are worried that the Fed could be doing too much at a faster pace considering that the economy is slowing. Data published on Wednesday revealed that retail sales dropped by 0.3% in May while core sales rose by just 0.6%. The weak sales numbers were attributed to the rising inflation.
Meanwhile, the AUD/USD price is also reacting to a hawkish statement by RBA governor, Philip Lowe. In an interview with ABC, he said that the official cash rate could rise to 2.5% this year as it keeps fighting inflation. The RBA expects that inflation will soar to 7% this year.
The market now expects that the RBA will hike rates by another 0.50% in July. This will mark the biggest back-to-back rate hike since 1994. As a result, Australia’s bond yields have been soaring, with the ten-year rising to 4.15%.
In a note, analysts at Goldman Sachs said that the RBA will hike by 0.50% in July and then move to 0.25% hikes in September and November.
AUD/USD Forecast
The AUD/USD pair is trading at 0.7016, which is slightly higher than the lowest point this week. It remains between the 25-day and 50-day moving averages. Also, the pair has moved above the important support level at 0.6828, which was the lowest level in May.
It has also moved slightly above the 23.6% Fibonacci retracement level while the RSI is pointing upwards. The pair will likely resume the downward trend as bears target the support at 0.6828.
