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 In the past few days, key commodity prices have been in a strong bearish trend
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6830.
- Add a stop-loss at 0.7020.
- Timeline: 2 days.
Bullish view
- Set a buy-stop at 0.700 and a take-profit at 0.7050.
- Add a stop-loss at 0.6950.
The AUD/USD pair moved sideways on Tuesday morning after the latest minutes by the Reserve Bank of Australia (RBA). It is also reacting to the falling iron ore prices as concerns about global growth remains. The pair is trading at 0.6957, which is slightly below this week’s high of 0.700.
Global recession worries
The Australian dollar has struggled in the past few days as investors continue worrying about the global economy as central banks embrace a more hawkish tone.
According to the Wall Street Journal, odds of an American recession happening in 2022 rose to 44% from the previous 26%. The report was based on estimates by leading economists in the US.
The AUD/USD pair tends to underperform in periods of weak output because of the role commodities play in Australia. The country exports key commodities like coal, natural gas, and iron ore.
This explains why the pair is struggling. In the past few days, key commodity prices have been in a strong bearish trend. For example, copper has tumbled to the lowest level in more than 12 months. Similarly, iron ore has crashed as investors anticipate weak spending as interest rates rise.
The pair is also under pressure as investors reflect on the actions of the Fed and the Reserve Bank of Australia (RBA). Last week, the Fed decided to hike interest rates by 0.75%, the biggest increase in almost three decades. Officials also hinted that more hikes were on the way.
The decision came a week after the RBA surprised investors by hiking rates by 0.50%. Analysts were expecting a 0.25% hike. Minutes published earlier on Tuesday revealed that officials expressed hopes that they will continue hiking rates in the upcoming meetings. But they also cautioned that inflation will continue as the crisis in Ukraine escalates.
AUD/USD forecast
The four-hour chart shows that the AUD/USD pair has formed what looks like an inverted cup and handle pattern that is shown in black. The lower side of this pattern is at 0.6831. The pair remains slightly below the 25-day and 50-day moving averages.
It has moved to the standard pivot point while oscillators are pointing downwards. Therefore, because of the inverted cup and handle pattern, there is a possibility that it will have a bearish breakout to the first support at 0.6831.
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