Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6700.
- Add a stop-loss at 0.6485.
- Timeline: 1-2 days.
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6485.
- Add a stop-loss at 0.6700.
The Australian dollar rose to its highest point since October 6 after the country’s bureau of statistics published strong consumer inflation that cast doubt on interest rate cuts next week. It jumped to a high of 0.6616, up from this month’s low of 0.6441.
RBA Rate Cut Odds Fall
The AUD/USD pair rose after the Australian Bureau of Statistics (ABS) published strong inflation data. The report showed that the headline Consumer Price Index (CPI) rose from 0.7% in Q2 to 1.3% to Q3.
This growth translated to an annual growth of 3.2%, much higher than the previous quarter’s 2.1%. It moved much further from the Reserve Bank of Australia’s (RBA) target of 2.0%.
Other inflation gauges also continued to move in the wrong direction. The trimmed mean inflation rose 2.7% to 3.0%, while the weighted mean inflation moved to 2.8% from the previous 2.7%.
Therefore, these numbers mean that the RBA will likely opt to leave interest rates unchanged in its meeting next week. This is in line with what the bank did in the last meeting.
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The AUD/USD pair rose because the Australian inflation number confirmed a potential divergence with the Federal Reserve, which slashed interest rates by 0.25% on Wednesday.
This cut brought rates to between 3.75% and 4%. At the same time, officials noted that they will largely end the quantitative tightening policy in December.
Looking ahead, the AUD/USD pair will react to the upcoming Donald Trump and Xi Jinping talks in South Korea. A potential agreement will benefit the US, China, and Australia. Australia will benefit because it counts China as the biggest trading partner.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair bottomed at 0.6438 earlier this month and then bounced back to 0.6600. It retested the upper side of the Bollinger Bands.
The pair’s Relative Strength Index (RSI) has jumped above the neutral point at 50, a sign that the bullish trend is gaining momentum. Most importantly, the pair has formed a broadening wedge pattern, which is also known as the megaphone.
Therefore, the pair will likely continue rising as bulls target the psychological point at 0.6700. A drop below the lower side of the wedge will invalidate the bullish view.
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