A downtrend in AUD/USD began in January 2018. The trend gained momentum as the US dollar strengthened on a series of US interest rate increases. A number of key support levels have been breached and the currency pair is now closer to a key psychological support level at 0.7000.
On the fundamental side, the cash interest rate differential between the US and Australia widened to 0.75%. The probability of more Fed rate rises is still on the rise. At the same time, weakness in commodity prices persists as international trade disputes drag. Further, the fears of a slower Chinese economy are surfacing. Altogether, more pressure has been exerted on the Australia dollar.
On a daily chart, the next critical support level to watch is around 0.7000, if the downtrend continues. In case of a breach of the support level, the next target to watch will be around 0.6800, near the low in January 2016.
A possible strategy is to wait for a bearish candle that could close lower than a previous low around 0.7040. A possible stop loss could be around 0.7200. The potential risk-reward ratio is roughly 2:3. It may also be appropriate to realize part of the profit at around 0.69 in case of any pullback.
However, a bounce of the Australian dollar is still possible if the US dollar weakens Traders may be alert for signals from their own metrics or technical analysis to determine any action.