On the Cusp of a Bearish Breakdown

Expectations are that the RBA will leave interest rates unchanged since inflation in Australia is fading.

• Sell the AUD/USD pair and set a take-profit at 0.6457.
• Add a stop-loss at 0.6580.
• Timeline: 1-2 days.

• Set a buy-stop at 0.6555 and a take-profit at 0.6650.
• Add a stop-loss at 0.6500.

The Australian dollar continued falling ahead of the latest US inflation data. The AUD/USD exchange rate dropped to 0.6537, where it has been at in this week. In all, the pair has dropped by more than 5% from its highest point in July.

The AUD/USD pair has been in a bearish trend after a divergence emerged between the Reserve Bank of Australia (RBA) and the Federal Reserve. In its last interest rate decision, the RBA decided to leave interest rates unchanged.

On the other hand, the Federal Reserve decided to hike interest rates by 0.25%, pushing them to the highest level in over 25 years. Now, analysts are focusing on what will happen in September when the two banks meet.

Expectations are that the RBA will leave interest rates unchanged since inflation in Australia is fading.

The biggest question mark is on what the Fed will do since officials have said that they will be data-dependent. Data published last week showed that the unemployment rate dropped to 3.5% while average wages grew by 4.4%.

The strong wage growth pushed some Fed officials to predict that the Fed will continue hiking interest rates. The next key data to watch that will impact the next Fed decision will come out on Thursday, when the US will publish the latest inflation data.

Economists polled by Reuters expect the data to show that the headline consumer price index (CPI) rose from 3.0% in June to 3.3% in July. Core inflation, on the other hand, is expected to move from 4.8% in June to 4.7% in July.

Higher inflation numbers will mean that the Fed will deliver another hike in September and push the AUD/USD pair lower.

The AUD/USD pair has been in a strong bearish trend in the past few weeks. This decline was confirmed when the pair formed a double-top pattern at 0.6892. The pair remains below the neckline of this pattern at 0.6596.

It has moved below the 25-day moving average and the Ichimoku cloud indicator. The MACD has formed a bullish divergence pattern. Therefore, the pair will likely show some volatility on Thursday after the latest inflation numbers. If this happens, the next level to watch will be at 0.6457.

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