Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7280.
Add a stop-loss at 0.7050.
Timeline: 1-2 days.
Bearish view
Sell the AUD/USD pair and set a take-profit at 0.7050.
Add a stop-loss at 0.7280.
The AUD/USD pair wavered on Wednesday morning as traders reacted to the latest Australian consumer inflation report. It was trading at 0.7170, a few points above this week’s low of 0.7080.
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Australia Inflation and the RBA Implications
The AUD/USD pair wavered after the Australian Bureau of Statistics (ABS) published the latest consumer inflation data. This report showed that consumer prices remained at an elevated level in April and in the first quarter of this year.
The headline CPI rose from 4.60% in March to 4.2% in April as energy prices remained at an elevated level. Rising energy prices have also contributed to a jump in other prices, like transportation and food.
The report also showed that the headline, trimmed, and weighted mean inflation figures remained above the bank’s target range of between 3% and 4%. This report will likely put pressure on the Reserve Bank of Australia (RBA) to act.
The bank has been one of the most hawkish central banks in the world this year. It has already delivered three rate hikes so far, and, in theory, this inflation report should pressure it to hike again.
The challenge, however, is that a recent report suggests that the bank will remain on hold for a while. This report showed that the economy lost jobs in April, while the unemployment rate jumped and the participation rate slipped.
The pair also reacted to the ongoing developments between the US and Iran, where the two countries continue to negotiate. A deal will benefit the Australian dollar because it is often seen as a risk-on currency.
The next key catalyst for the AUD/USD pair will be the upcoming personal consumption expenditures (PCE) data that comes out on Thursday. This inflation report will provide hints on what to expect from the Fed.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has been relatively volatile in the past few days. Most importantly, it has formed an inverted head-and-shoulders pattern, a common bullish reversal sign.
The pair has remained above the 50-day Exponential Moving Average (EMA). Also, the Relative Strength Index (RSI) and the MACD indicators have continued rising.
Therefore, the pair will likely continue rising, potentially to the year-to-date high of 0.7278. A move above that level will point to more upside, potentially to 0.7300. On the other hand, a drop below the support at 0.7080 will invalidate the bullish view.
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