Bullish view

• Buy the AUD/USD pair and set a take-profit at 0.6800.
• Add a stop-loss at 0.6700.
• Timeline: 1 day.

Bearish view

• Set a sell-stop at 0.6730 and a take-profit at 0.6625.
• Add a stop-loss at 0.6800.

The AUD/USD exchange rate drifted downwards after the latest Australian budget and ahead of the upcoming American inflation data. It dropped to a low of 0.6747, which was lower than this week’s high of 0.680. This price is about 2.9% above the lowest level this month.
 

Australian budget and US inflation

The AUD/USD exchange rate drifted downwards after the Australian budget. The closely-watched budget had winners and losers. For example, single parents will receive extra payments while low-income households will receive billions in energy relief.

The budget also had some tax incentives for small businesses. For example, companies with up to $10 million in turnover will be able to write off new equipment worth up to $20,0000. Further, companies making $50 million will also receive a one-off $650 off their power bills. The budget also had several parts on migration, housing, and education.

There will be no economic data from Australia on Wednesday. Therefore, the main news to watch will be the upcoming American consumer price index (CPI) data. Together with the labor market, these are usually the most important economic numbers in the economic calendar.

On Friday, data showed that the Bureau of Labor Statistics (BLS) showed that the economy created more than 254k jobs in April. The unemployment rate dropped to 3.4% while wages continued rising. These numbers showed that the economy is doing well.

Therefore, the focus shifts to the upcoming American inflation data. Economists expect the data to show that American inflation remained at an elevated level in April. Precisely, they expect the country’s inflation to remain at 5.0% on a year-on-year basis. They also expect the data to show that the core CPI dropped to 5.4% in April. If analysts are correct, it means that the Fed could decide to pause interest rate hikes.
 

AUD/USD technical analysis

The AUD/USD exchange rate rose to 0.6800 this week. This was an important level since it was the highest point on April 4 and April 14. The price is also at the 38.2% Fibonacci Retracement level. It also remains above the 25-period and 50-period exponential moving averages (EMA). The MACD has also moved above the neutral point.

Therefore, the pair will likely have a bullish breakout as buyers target the 50% retracement point at 0.6800. This view will become invalid if the pair moves below the 25-period moving average.

(Click on image to enlarge)

More By This Author: