AUD/USD pair to watch this week
Given today’s RBA meeting and Powell’s Fed intervention on Tuesday, the AUD/USD pair may be volatile in Forex this week.
The Reserve Bank of Australia will meet on Tuesday this week to decide on the interest rate in February. Until the most recent release of CPI data, the RBA was expected to rise by just 15 basis points to cut the base rate to 3.25%.
However, following the release of inflation data on January 24, expectations jumped to a 25 basis point increase for the next meeting. The inflation rate in the fourth quarter was 7.8% against the expected value of 7.5% and the previous value of 7.3%.
In addition, the monthly consumer price index for December jumped to 8.4% y/y against the expected 7.6% y/y and the previous value of 7.3% y/y. This indicates that inflation in Australia was not only high in the fourth quarter, but increased during the quarter.
In addition, the RBA’s truncated average CPI, which is the RBA’s preferred measure of inflation, rose to 6.9% year on year, compared with an expected value of just 6.5% year on year and a previous reading of 6.% year on year. At the previous meeting, it was about raising the rate by 50 basis points, and then about a pause.
The committee finally opted for a 25 basis point rate hike. Could the RBA rise another 25 basis points and then signal a breakout? Or is inflation still rising too fast? Will the Committee take a hawkish stance? The AUD/USD pair will definitely move in Forex, despite the result.
The United States released data on nonfarm payrolls on Friday after the FOMC meeting earlier this week. The central bank meeting was seen as a bit more dovish by the markets, with Fed Chairman Powell saying he can now say the disinflationary process has begun. It also sidestepped questions about a potential pause in the rate cycle before going up. However, the press release confirms that the Fed’s increase is “in progress”. This led the markets to believe that any future Fed rate hike would be reversed in the fourth quarter of this year.
But that all changed on Friday, when nonfarm payrolls data for January were released in the US. The headline (which included seasonal adjustments and benchmark revisions) jumped to 517,000 from an expected 185,000 and a higher December revised figure of 260,000. In addition, the unemployment rate fell to 3.4% from 3.5%. This is the lowest unemployment rate since 1969!
Strong employment data has lifted the US dollar and yields as many now see more room for a 25 basis point rate hike in March. Fed Chairman Powell will speak Tuesday at the Economic Club of Washington. Watch for comments clarifying what the markets may have misinterpreted.
AUD/USD has fallen in every normal channel since hitting a 2022 high in early April at 0.7661. The pair hit a 2022 low on October 13 and bounced higher off the channel on November 30. Since then, the AUD/USD pair has continued to rise.
However, price movement stalled near previous highs from August 11, 2022 and the 61.8% Fibonacci retracement level from 2022 highs to 2022 lows near 0.7092/0.7137. On Friday, after the release of the wage data, the price broke out of the rising wedge and is currently testing horizontal support and the 50-day moving average around 0.6884.
AUD/USD daily chart
Source: Tradingview, Stone X
If the price continues to fall below the current support levels around 0.6860, which includes horizontal support, the 61.8% Fibonacci retracement from Jan 3 lows to Feb 2 highs and the 50-day moving average (see daily chart), the next support is 200-day moving average at 0.6808.
Below this level, the price could drop to the January 3 low of 0.6688. However, note that the RSI is in oversold territory, which could mean a correction in the AUD/USD pair. If the price bounces, the first resistance is at the Jan 31 low at 0.6984 and then at the lower wedge trend line near 0.7067. Above, the price could reach a Feb. 2 high at 0.7156.
AUD/USD 4-hour chart
Source: Tradingview, Stone X
As Powell speaks on Tuesday, expect him to clear up anything that may have been misinterpreted by the markets during the FOMC meeting or last week’s NFP data. In addition, the RBA may be more hawkish than expected on Tuesday given much stronger inflation data. This could be a volatile week in the Forex market for the AUD/USD pair.
Joe Perry, CMT, FOREX.com » Official site
Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and accepts no liability for any direct, indirect or consequential damages that may result from anyone relying to such information.