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- Sell the AUD/USD pair and set a take-profit at 0.6400.
- Add a stop-loss at 0.6750.
- Timeline: 1-2 days.
- Set a buy-stop at 0.6683 and a take-profit at 0.6750.
- Add a stop-loss at 0.6490 (Weak S&R)
The AUD/USD price plunged to the lowest level since November last year after the hawkish statement by the Federal Reserve chair. It also retreated after the Reserve Bank of Australia (RBA) published its second decision of the year. The Aussie plummeted to a low of 0.6592, which was much lower than the year-to-date high of 0.7155.
The RBA delivered a relatively dovish statement on Tuesday. As was widely expected, the bank decided to hike interest rates by 0.25% for the tenth straight meeting. It pushed the official cash rate to 3.6% and maintained that more rate hikes were needed.
Still, Philip Lowe’s statement pointed to a pause later this year. Analysts are now expecting that the bank will stop hiking interest rates in its meeting in May. Lowe noted that inflation had peaked at 7.4% in the fourth quarter.
Data published before the meeting sent mixed signals about the Australian economy. Exports rose by 1% while imports increased by 5%, leading to a trade surplus of $11.6 billion. In China, Australia’s biggest trading partner, imports plunged by more than 10.2%.
The main catalyst for the AUD/USD pair was the hawkish statement by Jerome Powell. In his address to Senate, Powell said that the Fed had more work to do. He now supports a higher terminal rate than what he had predicted earlier.
Therefore, investors expect that the Fed will hike interest rates by 0.50% in its meeting this month. Before his testimony, analysts were expecting the Fed to hike rates by 0.25% in March followed by 2 more 0.255 increases by June.
The AUD/USD pair will react to the second day of Jerome Powell’s testimony. Other key numbers to watch will be the latest US trade numbers and ADP jobs numbers.
The AUD/USD pair plunged below the key support level at 0.6683, which was the lowest level on July 14. By moving below that level, it invalidated the inverted head and shoulders pattern that has been forming.
The pair also moved slightly below the strong pivot point based on Murrey math lines. Also, it dropped below the bearish flag pattern that was forming and the 25-day and 50-day moving averages. Therefore, the pair will likely continue falling, with the next level being the ultimate support at 0.6373.
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