Fundamental analysis of AUD/USD for 07.02.2024

The AUD/USD currency pair rose sharply in early Asian trading on Wednesday, reaching 0.65300, thanks to a combination of factors, including the weakness of the US dollar and the hawkishness of the Reserve Bank of Australia. 

The AUD/USD currency pair has shown a volatile reaction to global and domestic economic indicators. Hopes are rising ahead of RBA Governor Bullock's speech on Friday. On the micro level, Australian private sector data showed a contraction in the manufacturing sector and the manufacturing business activity index came in below expectations.

The latest news from the US Federal Reserve sparked both caution and excitement about interest rate changes. Cleveland Fed President Loretta Mester said separately that while a rate cut is scheduled for later this year, doing so too soon could be risky. Minneapolis Fed President Neel Kashkari supported that assessment, saying that while short-term inflation levels have been achieved, annual data remain below the Fed's target. Fed Chair Jerome Powell also downgraded expectations for a rate cut in the near term, saying he may delay the idea of a rate cut until the second half of the year, especially if it is based on positive labor market data. 

From an Aussie perspective, the Reserve Bank of Australia's decision to leave interest rates unchanged at 4.35% at its February meeting reflects a cautious approach to inflation. At the same time, the country's inflation rate is above the desired 4.1%. The central bank's hawkish outlook points to higher interest rates, thereby supporting the Australian dollar. This stance is reinforced by the RBA's focus on global economic developments, domestic demand trends and the broader inflation and labor market outlook. However, in the near term, uncertainties such as a slowdown in China's economy and geopolitical tensions in regions such as Ukraine and the Middle East could threaten the stability of the Australian economy and the AUD/USD exchange rate. 

Looking ahead, the focus is on upcoming economic data releases and central bank announcements, including speeches by FOMC members, which will provide insights into financial markets, macroeconomic conditions and key trade partnerships. These events will not only influence short-term trends in AUD/USD, but will also provide a clearer picture of monetary policy divergence between the US and Australia, especially in light of the changing economic landscape in China and the broader global context.

Technical analysis and scenarios:

The current AUD/USD price is at 0.65280, sitting near the middle Bollinger Bands (0.65240), indicating that the price is stabilizing after recent movements. The horizontal direction of the Bollinger Bands indicates that the market is in a consolidation phase, while volatility is expected to increase, as evidenced by the widening of the price range between the bands. 

Main scenario (BUY)

Recommended entry level: 0.65450

Take Profit: 0.65850

Stop Loss: 0.65250

Alternative scenario (SELL)

Recommended entry level: 0.64970

Take Profit: 0.64550

Stop loss: 0.65150