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The AUD/USD pair remained under pressure as investors started to price in a stronger US dollar as risks rise. It was trading at 0.7045 on Tuesday, down from the year-to-date high of 0.7276.
Investors are Predicting a Strong US Dollar
The AUD/USD pair remained under pressure in the past few days as investors predicted that the US dollar will be strong. Odds of a strong dollar rose after the US published strong US jobs numbers on Friday.
The report published on Friday showed that the economy created 172k jobs in May this year. This was a big increase from the 85k that analysts were expecting. Also, the unemployment rate remained unchanged at 4.3%.
The AUD/USD pair will next react to the upcoming US consumer inflation report. Economists expect the upcoming report to show that inflation jumped in May, with the headline CPI rising to 4.2%. Such a move will be moving further away from the 2% target.
Therefore, there is a likelihood that the Fed will maintain a more hawkish tone. Indeed, data on the prediction markets shows that some analysts predict that the Federal Reseve will deliver at least one interest rate hike this year.
On the other hand, there are signs that the Reserve Bank of Australia (RBA) will maintain interest rates unchanged in the foreseeable future. Recent data shows that the Australian economy has started to soften in the past few months.
Consumer inflation pulled back slightly, while another report showed that the economy slowed last quarter. One of the reasons for this slowdown is that the RBA has hiked interest rates three times this year.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has been in a downward trend in the past few weeks. This retreat escalated on Friday after the US published the latest non-farm payrolls report. It formed a rising wedge and a bearish flag pattern before this retreat.
The pair has moved below the 23.6% Fibonacci Retracement level at 0.7075. At the same time, the pair has retreated below the 50-day Exponential Moving Average (EMA) at 0.7121. The Relative Strength Index (RSI) has continued falling and is nearing the oversold level of 30.
Therefore, the pair will likely continue falling as sellers target the next key support level at 0.6950, the 38.2% Fibonacci Retracement level.
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Crispus Nyaga is a Technical Analyst at DailyForex with more than eight years of experience as a financial analyst, coach, and trader. He specializes in technical analysis of major currency pairs and cryptocurrencies, using chart patterns, trend structure, and key indicators to frame trading scenarios for Forex and digital asset markets. Crispus has worked with well-known brokers including ATFX, easyMarkets, and OctaFX, and his market commentary has been published widely on platforms such as Seeking Alpha, InvestingCube, Capital.com, and Invezz.
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