Set to Retest Key Support at 0.800

The economic calendar will be muted on Monday. 

Bearish view

• Sell the AUD/USD pair and set a take-profit at 0.6800.
• Add a stop-loss at 0.6985.
• Timeline: 1-2 days.

Bullish view

• Set a buy-stop at 0.6940 and a take-profit at 0.7050.
• Add a stop-loss at 0.6850.

The AUD/USD exchange rate rose after the relatively hawkish interest rate decision by the Reserve Bank of Australia (RBA). It rose to a high of 0.7012 and then pulled back to 0.6920. The pair will next react to the upcoming American consumer inflation data scheduled for Tuesday. These numbers will likely have the biggest impact on the pair for the remaining part of the month.

US inflation data ahead

The AUD/USD reacted to the hawkish statement by the RBA. In its first decision of the year, the bank decided to continue with its interest rate hikes. It hiked by 0.25%, bringing the official cash rate to 3.30%, and signaled that it will continue hiking interest rates to about 3.75%. It attributed the rate increase to the fact that inflation remains stubbornly high in the country.

The economic calendar will be muted on Monday. Therefore, the focus among traders will be the upcoming US consumer inflation data. These numbers will provide more clarity about what to expect from the Federal Reserve in the coming months.

In its first decision of the year, the Fed decided to hike interest rates by 0.25% and pointed to more hikes later this year. The strong jobs numbers published this month mean that the Fed has the impetus it needs to continue hiking rates in the coming months.

Therefore, if inflation figures come hotter than expected, there is a possibility that the Fed will embrace a more combative tone. The main expectation is that the headline consumer price index (CPI) rose from 0.1% to 0.4% in January, helped by the soaring service inflation. This increase is expected to translate to a year-on-year increase of 6.2%, down from the previous 6.5%.

Core inflation, which excludes the volatile food and energy prices, is expected to have fallen from 5.7% to 5.5%. These inflation numbers will set the tone for all currency pairs with the US dollar for the remaining part of the month.

AUD/USD prediction

The AUD to USD pair formed a double-top pattern at ~0.7140 whose neckline was at 0.6985. It then formed a break and retest pattern by moving back to the neckline last week after the latest RBA decision. The pair has moved below the 25-day and 50-day moving averages. It is also slightly above the important support at 0.6896 (December 13).

Therefore, the outlook of the pair is bearish, with the next key target price being at 0.6800. The stop-loss of this trade will be at 0.6985.