After dropping significantly yesterday, the AUD/USD pair dropped even further on Friday. Bears continue to test the 50-day Simple Moving Average (SMA) as the pair trades below 0.6700 during the early European session.

The risk-averse Australian dollar fell on Thursday as muddled Chinese inflation data and a disappointing US jobs report stoked fears of a global economic slowdown. Supported by a small increase in US Treasury bond yields, the US Dollar (USD) is consolidating the significant gains it made the previous day to nearly a one-week high. The AUD/USD falls more, although further losses appear to be capped.

Because of doubts about future Fed actions, USD bulls are becoming cautious in their wagers. The US Consumer Price Index report released earlier this week showed that inflationary pressures were easing, suggesting that the US Federal Reserve could pause its rate-hiking cycle, which has been ongoing for the past year. Views among investors on whether or not rates will be lowered later this year are mixed. This and the upbeat mood in the stock market strengthen the AUD/USD currency combination.

Bearish investors should also be mindful of the hawkish perspective held by the Reserve Bank of Australia (RBA), which signals that monetary policy may need to be tightened to return inflation to goal on time. If this week’s rejection of the 100-day SMA is to be extended, further selling must occur as a follow-through. Recent gains in the AUD/USD pair are projected to be erased by the end of the week.

Trade Idea:

Consider selling AUD/USD if it breaks below the 50-day SMA, targeting 0.6600. Monitor RBA’s hawkish view and US Treasury bond yields for further directional cues.