Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6450.
- Add a stop-loss at 0.6650.
- Timeline: 1-2 days.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6650.
- Add a stop-loss at 0.6450.
The AUD/USD exchange rate continued rising after the Australian Bureau of Statistics (ABS) published strong inflation data last week. It rose to a high of 0.6550, its highest level since November 13, and much higher than last month’s low of 0.6420.
RBA and Fed Divergence Odds Rise
The AUD/USD pair rose after the latest Australian inflation numbers came out hotter than expected. ABS data showed that the country’s core inflation rose to 3.3% in October, higher than the expected 3.0%.
These numbers moved beyond the bank’s target of 2.0 %, a sign that it will maintain a more hawkish tone. At the same time, another Reuters poll of analysts showed that home prices will rise by about 7% as the labor market softened.
As a result, some analysts are betting that the bank will not only leave interest rates unchanged in the final meeting of the year but also hike by 0.25% to prevent further inflation gains.
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A rate hike or even a pause means that the RBA will diverge from the Federal Reserve, which is expected to cut rates by 0.25% in the December meeting.
Odds that the bank will cut interest rates have risen after some top officials like Christopher Waller and John Williams noted that they supported lower rates because of the fragility of the labor market.
Australia will publish some important numbers this week that will help the central bank when determining whether to cut its interest rates. AIG and S&P Global will publish their manufacturing PMI numbers on Wednesday.
On the same day, Australia’s statistics agency will publish the third quarter GDP data, which will provide more color on whether the country continued its growth or not. It will then release the latest trade numbers later this week.
AUD/USD Technical Analysis
The daily timeframe chart shows that the AUD/USD exchange rate rose to a high of 0.6550, much higher than last month's low of 0.6420. This low level was along the neckline of the head-and-shoulders pattern.
The pair has moved above the 50-day and 100-day Exponential Moving Averages (EMA), while the Relative Strength Index (RSI) have all pointed upwards.
Fundamentals suggest that the AUD/USD pair will continue rising because of the Fed and RBA divergence. However, the head and shoulders pattern suggest that the pair may have a bearish breakout in the next few days. More downside will be confirmed if it moves below the H&S’s neckline.
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