Aussie Recovery Has More Room to Run

The pair will likely keep rising as bulls target the 50% retracement point at 0.6980.

Bullish View

• Buy the AUD/USD pair and set a take-profit at 0.6981.
• Add a stop-loss at 0.6900.
• Timeline: 1 day.

Bearish View

• Set a sell-stop at 0.6867 and a take-profit at 0.6800.
• Add a stop-loss at 0.6935.

The AUD/USD currency pair rally continued on Wednesday morning. The AUD/USD price rose to a high of 0.6900, which was the highest point since July 1st. It has risen by more than 3.30% above the lowest level last week.

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US Dollar Pulls Back

The main reason for the strong AUD/USD rally is the fact that the US dollar has retreated across the board. The closely watched dollar index (DXY) has dropped from last week’s high of $109.30 to $106.54.

The dollar sell-off accelerated after the relatively weak US housing data. Numbers by the Commerce Department showed that housing start declined by 2% to a seasonally adjusted 1.56 million. That decline was worse than the expected 1.4%.

At the same time, building permits declined by 0.6% to 1.69 million. These numbers came a day after a separate report showed that building confidence plummeted in July. Houebuilders are concerned about the rising interest rates and higher cost of living.

The pair will next react to the latest existing home sales data. Economists expect the data to reveal that existing sales declined from 5.41 million in May to 5.38 million in June. Therefore, the AUD/USD pair has dropped as investors bet that the Fed will not implement a 100 basis points hike when it delivers its decision next week.

The AUD/USD price also rose after the relatively hawkish minutes by the Reserve Bank of Australia (RBA). Minutes published on Tuesday revealed that the committee was increasingly concerned about the soaring inflation. As such, they hinted that the bank will continue hiking interest rates in the coming meetings.

On a positive side, there are signs that inflation is retreating naturally as the cost of shipping has been falling lately. Further, the price of most commodities has declined sharply in the past few weeks.

AUD/USD Forecast

The AUD/USD pair continued rising as the US dollar sell off continued. It rose to a high of 0.6900, which was along the 38.2% Fibonacci Retracement level on the three-hour chart. It has moved above the upper side of the descending channel that is shown in blue.

The 25-period and 50-period moving averages have made a bullish crossover pattern. Therefore, the pair will likely keep rising as bulls target the 50% retracement point at 0.6980.

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