The pair will likely continue falling ahead of the Fed decision.
Sell the AUD/USD pair and set a take-profit at 0.7000.Add a stop-loss at 0.7170.Timeline: 1 day.
Set a buy-stop at 0.7150 and a take-profit at 0.7250.Add a stop-loss at 0.7035.
The AUD/USD pair retreated slightly even after the Reserve Bank of Australia (RBA) delivered a more hawkish interest rate hike than expected. The pair is trading at 0.7092, which is about 0.80% below the highest level this week.
RBA Decision Review
In 2021, the RBA assured investors that its highly accommodative policy would continue until at least 2023. At the time, most analysts believed that the bank was missing the point on inflation, which pushed the Australian dollar sharply higher against the US dollar.
The RBA caught investors by surprise on Tuesday when it implemented a bigger rate hike than what they were expecting. Philip Lowe made a 0.25% rate increase, the first time it has done that in eleven years. Data compiled by Reuters showed that most analysts were expecting the bank to deliver a small rate hike of about 0.15%.
The RBA also signaled that it will keep hiking interest rates this year as it warned that inflation could soar to over 65 this uear. This inflation estimate was double what the bank was hinting at before. Data published recently showed that the headline CPI rose to 5.1% in the first-quarter while core CPI increased by 3.7%.
At the same time, the RBA signaled that the unemployment rate will keep falling and reach a low of 3.25% in early 2023.
Economists at Commonwealth Bank now believe that the RBA will deliver another hike in June, July, August, and November. If this happens, the rate will rise to 1.35%. The 10-year government yield rose to 3.14%, the highest level since 2014. Banks also increased their variable interest rates. The AUD/USD pair will next react to the upcoming interest rate decision by the Federal Reserve.
The four-hour chart shows that the AUD/USD pair has been in a downward trend in the past few weeks. It found a strong support at 0.7031. The pair has moved slightly below the 25-day and 50-day moving averages while the Relative Strength Index has started forming a bullish divergence pattern. It has also moved slightly below the standard pivot point.
Therefore, the pair will likely continue falling ahead of the Fed decision. If this view is right, the next key support level to watch will be at 0.700. A move above the resistance at 0.7170 will invalidate the bearish view.