The pair will likely have a relief rally as investors buy the dips.
Buy the AUD/USD and set a take-profit at 0.7300.Add a stop-loss at 0.7100.Timeline: 1-2 days.
Set a sell-stop at 0.7135 and a take-profit at 0.7050.Add a stop-loss at 0.7200.
The AUD/USD pair crashed to the lowest level since February this year as concerns about the Chinese economy pushed commodity prices sharply lower. The Aussie is trading at 0.7165, which is about 6.55% below the highest level this month.
Commodity Prices Retreat
The Australian dollar is often seen as a commodity currency because of the vast amount that it produces and exports. Some of the most important commodities in the country are iron ore, coal, and natural gas. Therefore, the Australian economy tends to do well when commodity prices are soaring.
This week, however, most commodity prices have dropped sharply as concerns about demand from China. The country’s government has embraced Covid-zero strategy that aims to end the virus completely. As a result, officials have ordered a lockdown in Shanghai, one of the biggest cities in the country.
The AUD/USD pair has also retreated as the risks associated with the upcoming election rise. Recent polls show that the race between Morrison and Albanese will be close even as the incumbent leads. An Ipsos poll showed that Albanese maintains low approval ratings.
The biggest catalyst for the pair on Tuesday will be the latest US consumer confidence data. This is usually an important figure considering that consumer spending is usually the most important part of the American economy.
Economists expect the data by Conference Board to show that confidence held steady in April even as most people continue to worry about inflation. They expect the number to reveal that consumer confidence rose to 108.0.
The other important data will be durable goods. Economists also expect these numbers will reveal that durable goods rose by 1.0% in March. Finally, the US will release the house price index and new home sales numbers.
The four-hour chart shows that the Aussie has settled at a strong support level. It remains at its lowest level since March 15th. Oscillators show that he pair has gotten significantly overbought. At the same time, the Relative Strength Index (RSI) and the Stochastic Oscillator have started moving sideways, signaling that bottoming could be happening.
Therefore, the pair will likely have a relief rally as investors buy the dips. If this happens, the key reference level to watch will be at 0.7300. A drop below the support at 0.7100 will invalidate the bullish view.