Bearish outlook ahead of RBA decision
It is likely that the pair will resume the downtrend as the bears target the key psychological level at 0.6750.
- Set a sell stop at 0.6800 and a take-profit at 0.6700.
- Add a stop-loss at 0.6800.
- Lead time: 1-2 days.
Set a buy-stop at 0.6850 and a take-profit at 0.6900.
Add a stop-loss at 0.6800.
AUD/USD holds steady after last week‘s crash. The pair is trading at 0.6815, which is significantly higher than last week’s low at 0.6767. This price is around 6.46% lower than the high point in June of this year.
Upcoming RBA decision
The Australian dollar has been on a strong bearish trend over the past few weeks, even after the Reserve Bank of Australia (RBA) became extremely hawkish. In June, the bank surprised many investors by deciding to raise interest rates by 0.50%. This is the biggest rate hike by the bank in decades.
The next key catalyst for AUD/USD will be the next interest rate decision which is scheduled for Tuesday. Analysts expect the bank to step up its fight against inflation by raising interest rates by 0.50%. More importantly, they believe the bank will signal that it will offer a similar hike in August.
These rate hikes had an impact on the Australian economy. For example, the cost of government borrowing rose significantly, with the 10-year yield rising to 3.47%. Likewise, consumers are paying more money for mortgages.
Banks like CBA, NAB and Westpac have increased the cost of fixed mortgages. According to RateCity, more than 70 lenders have raised their rates. This is affecting the economy, with data released on Monday showing building approvals fell sharply in May.
In a recent statement, the RBA’s Philip Lowe warned that the country’s inflation will continue to rise in the coming months. The bank expects inflation to reach 7% by the end of this year. This is a significantly higher level given that the bank has an inflation target of 2.0%.
AUD/USD will also experience low volume on Monday as US markets will be closed for the Independence Day celebration.
The four-hour chart shows that the AUD/USD pair formed a symmetrical triangle last month. It then managed to have a bearish breakout last Friday as the strength of the dollar 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 on the lower side of the triangle pattern.
Therefore, despite the hindsight, it is likely that the pair will resume the downtrend as the bears target the key psychological level at 0.6750.