Bullish view

• Buy the AUD/USD pair and set a take-profit at 0.6650.
• Add a stop-loss at 0.6575.
• Timeline: 1-2 days.

Bearish view

• Set a sell-stop at 0.6590 and a take-profit at 0.6500.
• Add a stop-loss at 0.6650.

(Click on image to enlarge)

The AUD/USD pair pulled back on Monday morning after an encouraging statement from Australia’s Treasury Department on inflation. It retreated to the psychologically important level of 0.6600, down from last week’s high of 0.6622.
 

US and Australia inflation data

The AUD/USD pair retreated after the Treasury Department said that Australia’s inflation could drop to the RBA target of between 2.0% and 3% in the fourth quarter. In its outlook for the financial year, the department expects that inflation will fall faster than its previous estimate.

This view is more optimistic than what the RBA expects. In its last interest rate decision, the bank expects that the country’s inflation will remain above 2% through 2025 because of the rising accommodation costs.

If Australia’s inflation drops at a faster pace than expected, it means that the RBA will cut interest rates earlier and at a faster rate. The most recent data revealed that inflation remained at 3.5% in the first quarter.

Looking ahead, the main driver for the AUD/USD pair will be the upcoming US producer and consumer inflation numbers. Economists expect these numbers to show that inflation remained stubbornly high in April because of the accommodation and insurance sectors.

The average estimate among economists polled by Reuters is that the country’s inflation rose to 3.2% in April. They expect the core inflation, which excludes the volatile food and energy prices to come in at 3.6%, down from 3.8% in March.

These numbers will come at a time when the Fed is signaling that inflation will remain higher for longer. In its recent meeting, the bank left interest rates steady between 5.25% and 5.50%, the highest figure in over 20 years.

The other important data to watch will be Tuesday’s PPI report. The expectation is that the headline and core PPI came in at 0.3% and 0.2%, respectively.

Jerome Powell, the Fed Chair, will also talk on Tuesday, a statement that will impact the US dollar. Meanwhile, hedge funds continued to trim their Australian dollar short trades. Data by the CFTC showed that their positioning dropped to 64.5k from the previous 83.2k.
 

AUD/USD technical analysis

The AUD/USD pair retreated to the crucial support level at 0.6600 on Monday. On the 4H chart, the pair remains slightly above the 50-period and 25-period Exponential Moving Averages (EMA).

The pair also remains slightly above the Ichimoku cloud indicator. It has also formed a small bullish flag pattern, a popular sign of a continuation. Therefore, the pair’s outlook is bullish, with the initial target being last week’s high of 0.6622. A break above that level will see it jump to the key resistance at 0.6650, its highest swing this month.

More By This Author: