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The next key AUD/USD news will come from the United States where the Federal Reserve will deliver its decision.
- Buy the AUD/USD pair and set a take-profit at 0.6800.
- Add a stop-loss at 0.6600.
- Timeline: 1-2 days.
- Set a sell-stop at 0.6630 and a take-profit at 0.6550.
- Add a stop-loss at 0.6750.
The Australian dollar rose and then retreated after the shock interest rate decision by the Reserve Bank of Australia (RBA). The AUD/USD pair jumped to a high of 0.6716 and then pulled back to 0.6660 ahead of the upcoming decision by the Federal Reserve
The RBA caught many investors and economists by surprise when it decided to hike interest rates by 0.25% on Tuesday. Most of them were expecting the bank to leave interest rates unchanged at 3.60%, where they have been in the past few months.
The RBA cited the need to fight inflation, which remains stubbornly high at a time when the unemployment rate sits at the lowest level in more than 50 years. The Philip’s curve suggests that inflation will remain at a high level as long as the unemployment rate remains this low.
Further, the RBA wanted to show the market that it was still focused on inflation fight. For one, house prices have jumped recently since the RBA paused interest rates. Finally, Australia’s inflation remains at a lower level than peers like the United States and the UK.
The next key AUD/USD news will come from the United States where the Federal Reserve will deliver its decision. It is hard to predict what the Fed will do because of the vulnerability of the regional banking sector.
On Monday, the FDIC took over First Republic Bank and quickly sold it to JP Morgan. And analysts believe that more banks could collapse soon. On Tuesday, the SPDR Regional Bank ETF plunged by more than 4%. Specific high-risk banks like PacWest and West Alliance dropped sharply on Tuesday, meaning that traders expect that these banks will collapse as well.
Therefore, there is a likelihood that the Fed will either leave rates unchanged or decide to hike and point to a strategic pause.
The AUD/USD pair rose to a high of 0.6712, the highest point since April 21st. As it rose, it moved above the lower side of the ascending channel. The pair then formed a small shooting star pattern and pulled back. It is approaching the middle line of the Bollinger Bands while the Awesome Oscillator is above the neutral point.
Therefore, the pair will likely resume the bullish trend as buyers target the next key resistance point at 0.6800. The stop-loss of this trade will be at 0.6600.
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