Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6600.
- Add a stop-loss at 0.6400.
- Timeline: 1-2 days.
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6400.
- Add a stop-loss at 0.600.
The AUD/USD exchange rate is on the cusp of soaring to its highest level since December 2 as the US dollar index crash gained steam. It soared to a high of 0.6495 on Monday, up by almost 10% from its lowest level this year.
US dollar index crashes
The main catalyst for the ongoing AUD/USD exchange rate rise is the ongoing US dollar index crash. The index, which measures the performance of the greenback against other currencies plunged to $99.10, down by 10% from its highest point this year, meaning that it has moved into a technical correction.
Its crash continued after Moody’s downgraded the US credit rating from AAA to AA1 and warned that the US debt was growing in an unsustainable manner. It joins the other two rating agencies like S&P Global and Fitch that lowered their ratings before.
The AUD/USD pair also crashed after the House of Representatives voted to approve Donald Trump’s flagship spending bill. This bill increases the US debt by between $3.8 trillion and $5 trillion in the next decade.
It does this by introducing more tax cuts, including on tips and overtime pay. At the same time, the bill’s attempts to cut costs will not be enough to offset the rising public debt.
The US dollar also dropped after Trump threatened a whopping 50% tariff on goods coming from the European Union. Such a move would be a big one considering the volume of goods and services the two sides deal with.
There will be no major economic data and news from Australia this week. Instead, market participants will react to events from th United States. The most notable one will be the Federal Reserve minutes on Wednesday. The US will also publish the latest PCE and GDP data.
AUD/USD technical analysis
The daily chart shows that the AUD/USD pair rose as the US dollar index plunged to its lowest level in weeks. It has moved above the 50% Fibonacci Retracement level at 0.6430.
The pair has moved above the 50-day and 25-day Exponential Moving Averages (EMA). It has also formed an inverse head and shoulders chart pattern, a popular bullish continuation sign.
More gains will be confirmed if the pair jumps above the upper side of the ascending channel at 0.6515. A move above that level will point to more gains, potentially to the resistance level at 0.6600.
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Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.