The Australian dollar has started to correct lower against the greenback after the Australian inflation report came in worse than expected, causing fears of stubborn inflation.
The market is now pricing in the RBA Cash Rate at 3.81% by August (Vs 3.6% now), up from 3.72% just before the CPI data, however, the AUDUSD pair is slipping towards the 0.6600 area.
Australia’s CPI rose to 7% on-year in the January-March quarter, Vs 6.9% expected from 7.8% in the previous quarter, and well above the central bank’s target band of 2%-3%. CPI rose 1.4% on-quarter Vs 1.3% expected, down from 1.9% in the previous quarter.
Trimmed mean slowed to 1.2% on-quarter from 1.4% expected Vs 1.7% previously. The slow cooldown in inflation toward RBA’s target implies it may be too early to call an end to the tightening cycle.
With this in mind, the AUDUSD pair is also challenged technically. It is not overbought and shows a breakdown technically on both the short and medium-term time horizons.
According to the ActivTrader market sentiment tool some 28 percent of traders are bearish towards the AUDUSD pair. As we typically look to fade sentiment biases, this could mean the AUDUSD pair could continue to reverse lower.
It is worth mentioning that high levels of bullish sentiment suggest a classic contrarian sentiment trade is still in the making, so do be careful buying this pair at current level, especially as we trade around current levels.
AUDUSD Short-Term Technical Analysis
The four-hour time frame a show that a drop towards the March low is ongoing, and We may see the AUDUSD pair forming a much larger bearish reversal pattern if a drop towards the 0.6850 area.
If a larger bearish pattern forms then a move back to the 0.6500 region seems plausible. If a strong breakout takes hold under 0.6600, then a decline towards 0.6450 level might start to take place.
AUDUSD Medium-Term Technical Analysis
The daily time frame shows that a bearish rising price chance pattern. These types of head and shoulders patterns are typically considered to be one of the most reliable bearish reversal patterns.
According to technical analysis we could see a much more steeper price drop if bulls don’t soon start to take charge. Selling a retest of the 0.6550 level area also appear to be another strategy for the bears.