The AUD/USD price tilted higher as Australian and US bond yields maintained their bullish trend as investors bet on more rate hikes for longer.
- Buy the AUD/USD pair and set a take-profit at 0.7000.
- Add a stop-loss at 0.6650.
- Timeline: 1-3 days.
- Set a sell-stop at 0.6630 and a take-profit at 0.6550.
- Add a stop-loss at 0.6800.
The Australian dollar moved sideways as short-term bond yields continued rising and after mixed Aussie economic numbers. The AUD/USD exchange rate was trading at 0.6760, which was slightly above this week’s low of 0.6702.
The AUD/USD price tilted higher as Australian and US bond yields maintained their bullish trend as investors bet on more rate hikes for longer. In the US, the ten-year yield is approaching the closely watched resistance point at 4%. Shorter-term yields in the US and Australia have risen above 4%, meaning that the yield curve has inverted.
Investors are betting that the Fed will maintain its hawkish tone after a series of strong economic numbers. Data published on Wednesday showed that the manufacturing sector in the US held well in February. Other recent numbers on inflation, jobs, and retail sales have been significantly strong in the past few months.
Therefore, the rising bond yields signal that the Fed has more room for rate hikes. While some Fed hawks have called for a 0.50% hike in March, most analysts believe that it will raise rates by 0.25% in that meeting.
The AUD/USD pair also reacted to the strong economic numbers from China, Australia’s biggest market. According to Caixin, the manufacturing sector expanded in February. It had its biggest jump since 2020, signaling that the growth engine is continuing. Therefore, there is a likelihood that this recovery will lead to more demand for Australian goods.
Data from Australia show that consumer inflation came in at 7.4% in Q4, which is still above the RBA target of 2.0%. The economy expanded by 2.7% on a year-on-year basis and by 0.5% on a QoQ basis. Therefore, analysts expect that the RBA will hike by 0.25% in its next week meeting.
The AUD to USD pair has formed what seems like a perfect pattern. It has formed an inverted head and shoulders pattern, with the current price coinciding with the left shoulder. This price is also at the 38.2% Fibonacci Retracement level. The pair has moved slightly below the 50-period moving average while the MACD and Relative Strength Index have drifted downwards.
Therefore, there is a possibility that the pair will pull back in the coming days as buyers target the neckline of the H&S pattern at 0.7173.