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Forex » AUD/USD pair to watch this week

Currency pair of the week » AUD/USD

The decisions of the Reserve Bank of Australia (RBA) and the FOMC this week should provide clues to determine the next direction for the AUD/USD currency pair.

Inflation for the first quarter last week in Australia was higher than expected. The RBA’s preferred measure of inflation is a truncated average consumer price index, which stood at 3.7% vs. expected 3.4% and 2.6% in the fourth quarter of 2021. Markets are forecasting a 15 basis point rise in the RBA when members meet on Tuesday. . This will raise the spot rate from a record high of 0.1% to 0.25%. However, at its most recent RBA meeting, the committee acknowledged that inflation was on the rise, but wanted to wait until it was “sustainable” within the 2% to 3% target before raising rates. Does the RBA consider inflationary printing to be permanent? In addition, China’s PMI performance over the weekend was less than impressive, with official PMI and Caixin manufacturing PMI weaker than expected and below the 50 expansion/contraction level. This gives the RBA pause as it speculates about the ripple effect on the index. Australian economy. The wording of the statement will be extremely important as traders await further action from the RBA.

The FOMC meets on Wednesday this week to discuss interest rate policy. A rise of 50 basis points is almost certain, and any difference will cause volatility in the markets. This will raise the federal funds rate from 0.5% to 1.0%. With inflation hitting a 40-year high and Fed Chairman Powell saying he’s in favor of an early interest rate hike, markets were pricing a 50 basis point hike at each of the next three meetings. Markets will be watching the wording of the statement and the press conference to confirm his opinion. Anything less can disappoint the markets. In addition to this week’s FOMC meeting, US nonfarm payrolls will be released on Friday. The labor market is on fire and is expected to continue, with +400,000 new jobs added to the economy in April. Traders (and the Fed) will also be paying close attention to average hourly earnings after a strong Q1 Employment Costs Index hit 1.4% last week vs. an expected 1.1% and a forecast of 1% in Q4 2021. role in the Fed’s decision? -manufacturing process?

The AUD/USD pair has been trading lower in forex since hitting a pre-pandemic high of 0.8007 on February 25, 2020. AUD/USD traded lower and double bottomed around 0.6975 in late 2021 and early 2022. Back then, AUD/USD traded higher towards the double bottom target and made a false break above the 61st Fibonacci retracement, up 8% from the Feb 25, 2020 highs to Jan 28, 2022 lows, near 0.7610. Since that April 5 candle, the price has moved lower and is approaching the double bottom lows set earlier this year. However, note that the RSI is in oversold territory, indicating that the price of the AUD/USD pair may be poised for a bounce.

AUD/USD daily chart

Source: Tradingview, Stone X

The RSI on the 4-hour chart is also diverging from the price. If AUD/USD does recover, the first resistance level will be the upper trend line of the recent down channel around 0.7145. Above are horizontal resistance levels at 0.7180, 0.7229 and 0.7343. However, note that the price is just above the 127.2% Fibonacci extension from the March 15 lows to the April 5 high at 0.7030. If AUD/USD continues lower, the next support would be the Jan 28 low at 0.6968, followed by a 161.8% Fibonacci extension on the same time frame around 0.6859.

AUD/USD 4-hour chart

forex australian dollar/US dollar May 2, 2022Source: Tradingview, Stone X

In connection with the meeting of the RBA and the Fed this week, the AUD/USD pair may be unstable in Forex. The AUD/USD pair has fallen significantly since the beginning of April. Will the decline continue or will there be a rebound at support with a divergent RSI. The decisions of the two central banks this week should give an idea of ​​the next direction for the AUD/USD pair.

Joe Perry, CMT, FOREX.com » Official site

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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 warrant its accuracy or completeness and shall not be liable for any direct, indirect or consequential damages that may result from anyone relying on such information.

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