Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6950.
Add a stop-loss at 0.7150.
Timeline: 1-3 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7150.
Add a stop-loss at 0.6950.
The AUD/USD pair continued wavering as the market adjusted to the August Reserve Bank of Australia (RBA) interest rate decision and the July US consumer inflation report. It was trading at 0.7062, a few pips below this week’s high of 0.7090 as investors focus on the upcoming Producer Price Index (PPI) report.
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RBA Decision and US PPI Data
The AUD/USD pair wavered as traders continued reflecting on Tuesday’s RBA interest rate decision. Michele Bullock and her team voted to leave interest rates unchanged at 4.35%, even as inflation remained at an elevated level.
The RBA is concerned about the elevated inflation in the country. The recent data showed the country’s consumer inflation eased to 3.8% in the 12 months to June, down from 4.0% in May. It remains substantially higher than the bank’s range of between 2% and 3%.
Bullock hinted that the country’s inflation will move to the 2% target next year. In her statement, she hinted that the bank will not need to hike interest rates again this year. Besides, it has already hiked rates three times this year, making it the most hawkish central bank this year.
The AUD/USD pair also wavered after the US released inflation numbers that met analysts estimates. The headline CPI dropped to 3.4% in July, while the core CPI fell from 2.6% to 2.5%. These numbers mean that inflation remains slightly above the Fed’s 2% target.
Therefore, these numbers, coming after the Bureau of Labor Statistics (BLS) published weak nonfarm payrolls report, mean that the Fed will likely leave interest rates unchanged for the remainder of the year. As a result, the upcoming US Producer Price Index (PPI) report will likely have a minimal impact on the pair.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has wavered in the past few days. As it did tyis, it formed a doji candlestick, a common bearish reversal sign in technical analysis. It has also formed a head and shoulders pattern, which normally leads to more downside.
The pair has also formed a rising wedge pattern. Therefore, these patterns, together with the falling Average Directional Index (ADX), suggests that it may have a bearish breakout in the near term. If this happens, the next target to watch will be the psychological level of 0.7000. A drop below that level will point to more downside to 0.6950.
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