Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.5860.
- Add a stop-loss at 0.6100.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.5985 and a take-profit at 0.6100.
- Add a stop-loss at 0.5860.
The AUD/USD exchange rate continued its strong downward trend, reaching a low of 0.5970, its lowest level since 2020 at the onset of the pandemic. It has dropped in the last three straight days, making the Aussie one of the worst-performing currencies in the developed world. It is down by almost 7% from its highest level this year.
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China and USA trade war escalates
The AUD/USD pair has been in a strong downward trend after Donald Trump started a trade war as he seeks to balance trade with other countries. In a statement last week, he announced ‘reciprocal’ tariffs against all countries.
He launched a 10% tariff on all goods from Australia, a country that the US has a trade surplus with. He cited some unfair trade relations, noting that Australia does not accept American animal products like beef.
Australia, unlike other countries, has said that it will not retaliate against the US, arguing that its reciprocal tariffs would be taxes. However, the trade war between the US and China escalated, with the US now charging China additional tariffs. This means that most Chinese goods are being charged 104%, which will affect the two economies.
Australia is affected by the Chinese economy because of the vast amount of goods it buys from the country. These products include iron ore, natural gas, and coal. Therefore, a Chinese economic slowdown will likely have an impact on the Australian economy.
China has vowed to fight to the end, meaning that the trade war could go on for a while. At the same time, officials have hinted that they will launch a stimulus package to boost the economy.
The next key catalyst for the AUD/USD exchange rate will be the upcoming minutes of the last meeting by the Federal Reserve.
AUD/USD technical analysis
The daily chart shows that the AUD/USD pair has been in a strong sell-off in the past few days. It moved from the year-to-date high of 0.6415 to a low of 0.5935, its lowest point in years.
The pair has dropped below the key support at 0.6085, its lowest point on February 3rd. It has remained below the 50-day and 100-day Exponential Moving Averages (EMA), while the Relative Strength Index (RSI) has pointed downwards.
Therefore, the pair will likely continue falling as sellers target the ultimate support of the Murrey Math Lines at 0.5860.
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