Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.7170.
- Add a stop-loss at 0.6900.
- Timeline: 1-2 days.
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6900.
- Add a stop-loss at 0.7170.
The AUD/USD exchange rate pulled back slightly as the post-Reserve Bank of Australia (RBA) jump faded and as geopolitical risks rose. It pulled back to 0.6980, down from this week's high of 0.7050.
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Geopolitical Risks are Rising
The AUD/USD pair jumped earlier this week when the Reserve Bank of Australia (RBA) delivered its interest rate decision. In it, the bank decided to hike rates by 0.25% to 3.85% as it sought to fight the elevated inflation.
The most recent data showed that the headline and the closely-watched weighted mean inflation, which excludes the volatile items, moved further away from the target range of between 2% and 3%.
Another report showed that the country’s economy was at capacity as the unemployment rate continued falling. Therefore, the bank judged that hiking interest rates will be important to curtail inflation.
The pair then retreated on Wednesday and Thursday morning as market participants reacted to the happenings in the Middle East. A report by Reuters said that the planned talks between the US and Iran have stalled. As a result, there are chances that the US will attack Iran, a move that will lead to a regional war in the region.
The AUD/USD pair also reacted to a labor market report by ADP. This report showed that the labor market remained under pressure in January as the private sector created just 22k jobs after adding over 37k in the previous month.
Another report by the ISM showed that the services sector continued doing well, with the PMI remaining at 53.8 in January. On Monday, a similar report showed that the manufacturing sector returned to growth during the month.
AUD/USD Technical Analysis
The AUD/USD exchange rate has been in an uptrend in the past few months, reaching a high of 0.7095 this month. It dropped and formed a morning star candlestick, leading to a rebound after the RBA interest rate decision.
The pair remained above the 50-day and 100-day Exponential Moving Averages. It also moved above the Woodie pivot point and the Ichimoku cloud indicator.
Therefore, the most likely scenario is where it resumes the uptrend as bulls target the first resistance of the Murrey Math Lines tool at 0.7170. This forecast will be confirmed if it moves above the year-to-date high of 0.7095.