Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6350.
- Add a stop-loss at 0.6550.
- Timeline: 1-2 days.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6550.
- Add a stop-loss at 0.6350.
The AUD/USD exchange rate continued its downtrend as geopolitical risks rose following Donald Trump’s bomb attack in Iran. The pair dropped to a low of 0.6450, down sharply from the year-to-date high of 0.6550.
US Dollar Rises Amid Flight to Safety
The AUD/USD exchange rate has been in a downward trend in the past few days as the US dollar index rebounded to $100 for the first time in weeks.
The pair retreated as investors moved to the safety of the US dollar as geopolitical risks rose. In a statement on Saturday, Donald Trump confirmed that the US had completed its bomb attack on three key nuclear sites.
The attack led to a barrage of missile attacks between Israel and Iran, which have continued on Monday. It also led to a surge in crude oil prices, with Brent nearing the important resistance at $80,000 for the first time this year.
Shipping costs are expected to keep rising in the coming weeks as the risks of moving through Iranian waters rise. Recent data show that the average cost of shipping has jumped in the past few months as tensions have jumped.
The implication is that this crisis, coupled with Donald Trump’s tariffs, will fuel inflation and make it difficult for the Federal Reserve to cut interest rates as Donald Trump has demanded.
The next key macro data to watch will come from the United States, where S&P Global will publish the latest flash manufacturing PMI data. Economists expect the data to show that the US manufacturing PMI retreated to 51.2 in May and the services PMI fell slightly to 52.9.
The US will then publish the latest consumer confidence data on Tuesday, followed by the personal consumption expenditure data on Friday.
AUD/USD technical analysis
The AUD/USD exchange rate has pulled back in the past few days, moving from a high of 0.6550 to a low of 0.6450, its lowest level since June 2. It has moved below the 50% Fibonacci Retracement level at 0.6426.
The pair has also dropped below the ascending channel. Similarly, the Percentage Price Oscillator (PPO) indicator has formed a bearish divergence pattern, while the Relative Strength Index (RSI) has pulled back.
Therefore, the pair will likely continue falling as sellers target the key support at 0.6300. A move above the resistance at 0.6550 will invalidate the bearish view.
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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.
