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AUD/USD Analysis and Trading Plan

Last Friday, the U.S. Dollar Index (DXY) rose to its highest level in almost two years, hitting 98.80, the highest since May 2020, and ending the week up 2.1%, the strongest weekly gain in the past five years. The U.S. dollar continues to strengthen against most major currencies against the backdrop of military actions in Ukraine, which increases the attractiveness of safe-haven assets, as well as against the backdrop of strong macro data from the U.S.

Thus, according to data published last Friday, 678,000 jobs were created in the U.S. in February (the forecast assumed an increase of 440,000 jobs). The unemployment rate fell to 3.8% from 4.0% in January as employers continued to raise wages to keep their workers amid labor shortages. Thus, hourly earnings increased in February by 5.1% (in annual terms).

Although the U.S. non-farm payrolls report for February showed that the number of jobs is now 2.1 million below the level of February 2020, with such growth rates, this gap will close by about the middle of the year, economists say, and this, against the backdrop of rapidly rising inflation, pushes the Fed to take more decisive steps towards tightening its monetary policy. The next Fed meeting will be held March 15-16. As Fed Chairman Jerome Powell recently pointed out, he could propose a 25 basis point hike to curb inflation, though the Fed will have to tread carefully given the situation in Ukraine.

The topic of the war in Ukraine continues to be in the focus of investors’ attention, spurring an increase in energy prices. The recent rise in commodity prices was the strongest in several decades. The price of Brent oil today exceeded $128.00 per barrel, which corresponds to the highs since 2013. The price increase last week for corn was the highest since 2008, and for wheat – since 1959. Economists believe that rising prices for oil and gas, as well as for other commodities, is a key inflationary risk for the economy, threatening the growth of the entire global economy.

On the other hand, rising prices for commodities cause an increase in quotes of major commodity currencies, including against the U.S. dollar.

Thus, the Australian dollar is showing active growth against the U.S. currency, renewing local highs since November, despite the fact that the U.S. dollar also remains quite strong due to continued demand for it as a safe asset.

Last week, the Reserve Bank of Australia left its key rate at a record low of 0.10% and reiterated that it will not tighten policy until inflation stabilizes in the target range of 2%-3%. The RBA noted that the crisis in Ukraine has further clouded the prospects for the global economy.

Meanwhile, the rhetoric of the statements of the RBA leadership remains dovish, and RBA Governor Philip Lowe only notes that an increase in 2022 is a “probable” scenario. The Australian economy continues to recover strongly from the effects of the coronavirus pandemic. Australia’s GDP added 3.4% in the 4th quarter of 2021 (the forecast assumed a more modest growth of 3.0%). In annual terms, the growth rate of the Australian economy accelerated from 3.9% to 4.2%, which also exceeded preliminary market estimates at 3.7%. Retail sales rose 1.8% in January after declining 4.4% in December, while the Manufacturing PMI rose to 57.0 from 55.1 a month earlier, according to the latest data.

At the time of this writing, AUD/USD is trading near 0.7405, remaining in the bull market area above key support levels at 0.7295, 0.7315. As long as commodity prices are rising (and Australia is the world’s largest supplier of coal, iron ore, gold, liquefied gas, agricultural products), the Australian dollar will maintain a positive trend, despite the soft rhetoric of statements by the RBA leadership.

Reserve Bank of Australia Governor Philip Lowe is scheduled to give a speech on Tuesday and Thursday at 22:15 GMT. During his speech, Lowe will give an assessment of the current situation in the Australian economy and, probably, point to the further plans of the bank’s monetary policy. Any signals regarding changes in the plans of the monetary policy of the RBA will cause a sharp increase in volatility in AUD quotes. If he does not touch upon the topic of monetary policy, then the market reaction to his speech will be weak.

Technical analysis and trading recommendations

As we noted above, AUD/USD is developing an upward momentum, while AUD is receiving support from rising commodity prices, and USD is in demand as a safe-haven asset. Today, the 6th week of continuous growth of the pair has already begun, which has broken into the bull market zone – above the long-term key resistance levels of 0.7295 (200 EMA on the daily chart), 0.7315 (200 EMA on the weekly chart). During today’s Asian trading session, AUD/USD was able to rise to another local maximum of 0.7437, which corresponds to the levels of early November 2021. While AUDUSD maintains positive dynamics, above these key levels (0.7295, 0.7315), the advantage remains with long positions.

A breakdown of the local resistance level of 0.7437 will be a signal to build up long positions. The growth target is the long-term resistance level of 0.7775 (200 EMA on the monthly chart).

In the alternative scenario, we expect AUD/USD to resume its decline, and the signal for this will be a breakdown of the support level of 0.7356 (today’s low and 200 EMA on the 15-minute chart).

A return to the zone below the key support levels of 0.7295, 0.7315 will mean the return of AUD/USD to the global bearish trend zone.

Support levels: 0.7356, 0.7315, 0.7295, 0.7281, 0.7209, 0.7175, 0.7100, 0.7085, 0.7000, 0.6970, 0.6900, 0.6800, 0.6455

Resistance levels: 0.7437, 0.7555, 0.7775, 0.7900, 0.8000

Trading Recommendations

AUD/USD: Sell Stop 0.7350. Stop-Loss 0.7445. Take-Profit 0.7315, 0.7295, 0.7281, 0.7209, 0.7175, 0.7100, 0.7085, 0.7000, 0.6970, 0.6900, 0.6800, 0.6455

Buy Stop 0.7445. Stop-Loss 0.7350. Take-Profit 0.7500, 0.7555, 0.7775, 0.7900, 0.8000

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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