The AUDUSD pair is hanging out near three-year highs. This is the territory it first touched last week when the American dollar took a well-deserved breather—courtesy of Middle East peace talks. But don't let the headlines fool you.
Technically, things are getting messy. A few days earlier, the pair breached the 0.72000 resistance, only to turn on its heels and tumble right back down. This is what traders call a "false breakout". And history has a bad habit of turning the exact same pattern into a reversal signal—one that usually sends prices heading the other way.
Now, on to the fundamentals, and spoiler alert: they aren't pretty. In April, Australian inflation expectations skyrocketed to 5.9%—a nearly four-year high and a massive jump from last month's 5.2%. The main suspect? The oil shock from the Strait of Hormuz shutdown, which is pouring fuel on the CPI fire. With Brent crude still trading above $90, energy costs are directly feeding into consumer prices, leaving the Reserve Bank of Australia (RBA) with no easy way out. But here is the dilemma. The regulator has already raised interest rates to 4.10% in March. However, markets are starting to sweat that this tightening cycle will last way longer than anticipated. Higher borrowing costs could crush domestic demand, cool the housing market, and slam the brakes on Australia's growth. For the Aussie, that is a heavyweight problem—one that could send it stumbling lower.
The ultimate recommendation is to sell the AUDUSD pair, targeting 0.69000 within one to two months. To keep things under control, place a Stop Loss order just above resistance, namely at around 0.72250, in case the market moves against us.
This content is for informational purposes only and is not intended to be investing advice.
