Bearish view
Top Regulated Brokers
- Sell the AUD/USD pair and set a take-profit at 0.7150.
- Add a stop-loss at 0.7270.
- Timeline: 1-2 days.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.7270.
- Add a stop-loss at 0.7150.
The AUD/USD pair has trended higher over the past few months as investors recalibrated their expectations for the Reserve Bank of Australia's next move amid persistently elevated inflation. It has moved from the June low of 0.6867 to the current 0.7217.
RBA and Fed Rate Hike Expectations
The AUD/USD pair has jumped as investors price in a growing likelihood that the Reserve Bank of Australia (RBA) will hike interest rates at its next meeting. According to Polymarket, the odds of a rate hike this month have surged to 80%, driven by continued increases in energy prices.
A rate hike will make the RBA the most hawkish central bank this year, as it has already delivered three increases this year. That rate hike will come as Australia’s bond yields continue rising, with the ten-year hitting 5.275%, its highest level since June 2011.
The AUD/USD pair will next react to the upcoming US inflation numbers, which will come out on Thursday and Friday. These numbers come at a time when gasoline and diesel prices are rising amid the escalating war between the US and Iran.
The average gasoline price jumped to $4.23, while gasoline prices rose to near $6 a gallon. Brent, the global benchmark, rose to $101, while the West Texas Intermediate (WTI) soared to $97 as Iran and the United States continued their fight.
Like in Australia, US bond yields have continued rising as bond vigilantes set in. The ten-year yield has jumped to the highest level in over three years. This surge happened even as the US Treasury Department intervened in the bond market.
AUD/USD Technical Analysis
The AUD/USD pair has been in a strong uptrend over the past few months. It has jumped from 0.6867 to the current 0.7218. This rally has pushed it above the 50-day moving average. It is also between the upper and middle Bollinger Band lines.
The pair has formed a rising wedge pattern, which is made up of two ascending and converging trendlines. With the two lines nearing their convergence, chances are that the pair will have a bearish breakout in the near term. If this happens, the next key target to watch will be at 0.7100. The alternative scenario is that the pair jumps to 0.7270 and then resumes the downtrend.