Perfect head and shoulders forms

The AUD/USD exchange rate drifted upwards on Wednesday after the strong economic numbers from Australia and China. It rose slightly to a high of 0.6750, which was a few points above the lowest point in February.

Australia inflation retreats

There were several important AUD news on Wednesday. First, Australia published the closely watched consumer price index (CPI) data. According to the Australia Bureau of Statistics (ABS), the country’s CPI dropped to 7.4% in the fourth quarter. It remains significantly above that of other countries like the United States and Switzerland. 

In its first interest rate decision of the year, the RBA said that inflation will remain at an elevated level for a while. As a result, it decided to deliver another 0.25% rate hike and hinted that it was prepared to do more going forward.

The AUD/USD pair also reacted to the latest Australian GDP numbers. According to the bureau, the economy expanded by 0.5% in the fourth quarter, which translated to year-on-year growth of 0.5%. This growth was mostly driven by consumer spending, which rose by 0.4%. Capital expenditure declined by 1.4%.

Additional data showed that Australia’s manufacturing PMI returned to an expansionary area for the first time in months. It rose to 50.5, which is a sign that manufacturers are doing modestly well. Barring any major issues, the trend will likely continue in the coming months. 

The AUD/USD was also boosted by the strong China PMI numbers, which we wrote here. China is an important part for Australia since it buys most of its goods. And most recently, China has eliminated some of the trade restrictions of Australian goods.

AUD/USD forecast

AUD/USD chart by TradingView

March will likely be a strong month for the AUD to USD pair. On the daily chart, we see that the pair has formed a smooth inverted head and shoulders pattern. In price action analysis, this is usually one of the most accurate patterns in the industry. 

The AUD/USD pair is now forming the right shoulder of this pattern, which coincides with the left one. It also coincides with the 38.2% Fibonacci Retracement level. Therefore, the pair will likely make a spectacular comeback in March and retest the resistance at 0.7166, which is about 6.47% above the current level.