Bearish Perspective
- Sell the AUD/USD pair and aim for a profit target at 0.6450.
- Implement a stop loss at 0.6650.
- Timeframe: 1-2 days.
bullish Perspective
- Buy the AUD/USD pair with a take profit set at 0.6650.
- Establish a stop loss at 0.6450.
The exchange rate for AUD/USD has seen a rise following the Australian Bureau of Statistics (ABS) releasing robust inflation data last week. The index climbed to 0.6550, marking its highest point since November 13, exceeding the previous month’s low of 0.6420.
Divergence Odds Between RBA and FRB
AUD/USD managed to gain traction after the recent inflation figures in Australia came in higher than anticipated. The core inflation rate hit 3.3% in October, surpassing the expected 3.0%, according to ABS data.
This inflation exceeds the target of 2.0% set by the central bank, suggesting a more aggressive approach is likely. Interestingly, a separate survey by Reuters indicates expected home price increases of around 7% as the labor market shows signs of softening.
Consequently, some analysts believe the central bank will not only keep interest rates steady in its upcoming meeting but might also implement a 0.25% hike to curb inflation further.
A potential rate increase or pause could create a divergence from the Federal Reserve, which is projected to lower interest rates by 0.25% in its December meeting.
Increased likelihood of rate cuts from the central bank is suggested by comments from senior officials like Christopher Waller and John Williams, who have indicated support for dropping rates due to a weakening labor market.
This week, Australia is set to disclose important figures that may influence the central bank’s decision on interest rates. On Wednesday, AIG and S&P Global will release manufacturing PMI data.
Addtionally, the Australian Bureau of Statistics will publish third-quarter GDP figures that could offer further insights into the nation’s growth trajectory, along with updated trading statistics later in the week.
AUD/USD Technical Review
On the daily chart, the AUD/USD exchange rate reached a peak of 0.6550, significantly higher than last month’s low of 0.6420. This prior low coincided with the neckline of a head and shoulders pattern.
The pair remains above both the 50-day and 100-day exponential moving averages, with the relative strength index (RSI) trending upwards.
Fundamentally, conditions seem to favor a continued rise in the AUD/USD due to the divergence between the Federal Reserve and the RBA. However, the head-and-shoulders formation indicates that a bearish breakout could occur soon. A further decline would be validated if prices dip below the neckline of this pattern.
Chrispus Nyaga has over eight years of experience as a financial analyst, coach, and trader. He has previously worked with several leading firms and has contributed extensively to various financial platforms. In his free time, he enjoys watching golf and spending quality moments with his family.
