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AUD/USD Forex Signal: Extremely Bearish as Bond Yields Soar – 20 September 2022

America’s bond yields continued their upward trend as focus remained on the upcoming Federal Open Market Committee (FOMC) meeting.


Bearish view

Sell the AUD/USD pair and set a take-profit at 0.6600.Add a stop-loss at 0.6780.Timeline: 1-2 days.

Bullish view

Set a buy-stop at 0.6735 and a take-profit at 0.6800.Add a stop-loss at 0.6670.

The AUD/USD price moved sideways on Tuesday morning as US bond yields soared to the highest level in over a decade. The pair dropped to 0.6700, which was substantially lower than August’s high of 0.7137.

US bond yields soar

America’s bond yields continued their upward trend as focus remained on the upcoming Federal Open Market Committee (FOMC) meeting.

The yield of the 10-year government bond rose to 3.5%, which was the highest point since April 2011. In the same session, the two-year Treasury note yield rose to 3.95%, the highest point in 15 years. The two-year yield is known for tracking interest rate expectations.

The performance of the bond market is a reflection that investors expect that the Federal Reserve will continue hiking interest rates. It has already hiked by 225 basis points this year and started implementing its quantitative tightening policies.

Most analysts expect that the Fed will hike rates by 0.75% for the third time this year. It will also hint that more hikes were coming in the coming months.

The AUD/USD price also struggled as Australia’s bond yields rose. The 2-year yield rose by 1.5% to 3.36% while the 10-year rose to 3.70%. The longer-dated 30-year yield rose to 4% after the RBA published the minutes of the last meeting. These minutes revealed that the bank was still committed to rate hikes in the coming months.

The only important economic data to focus on on Tuesday will be US housing numbers. Economists polled by Reuters expect the data to show that the housing market continued struggling in August as interest rates surged. For example, they expect that housing starts dropped to 1.446 million to 1.445 million while building permits fell from 1.685 million to 1.610 million.

AUD/USD forecast

The AUD/USD pair has been in a strong bearish trend in the past few days. On the four-hour chart, it has found a strong support at 0.6683, which was the lowest level in July this year. This price is also the lower side of the inverted cup and handle pattern. It has also moved below the 25-day and 50-day moving averages.

Therefore, the outlook for the AUD/USD exchange rate is bearish as the US dollar strength continues. As such, it will likely continue falling as sellers target the support at 0.6600.

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