The AUD/USD pair is assaulting the level of 0.78. On Tuesday, buyers of this instrument failed to reach this price level – the pair was just a few points above the target of 0.7800. On the wave of counter-resistance, the price collapsed by almost 100 points, moving to the lower border of the range of 0.7700 (Tenkan-sen line coinciding with the Kijun-sen line on D1) and 0.7790 (upper border of the Kumo cloud on the same time frame).
Currently, the Australian dollar is trading flat, particularly in the middle of the 0.77 level, reflecting the indecision of both buyers and sellers. In general, the upward prospects for the AUD/USD pair are in direct proportion to the behavior of the US dollar. If the US currency continues to show its vulnerability, the pair's traders will attempt to test the 78th figure again. But as soon as the specified currency starts to be in demand, the price will make a full reversal. It should be noted that the Australian dollar has no own arguments to develop its upward movement, since there are a lot fundamental factors against it.
Yesterday, the political conflict between Australia and China returned. This conflict has been simmering for many months now – flaring up and then fading again. The relations between these countries have calmed down since last summer, that is, since the Australian authorities initiated an investigation into the emergence of coronavirus in China. Since then, Beijing has been gradually getting back to Australia, resorting to political and economic measures (ban on coal imports, increased customs checks, increased tariffs on a number of goods, and so on). Despite the Australians' attempts to establish a negotiation, the Chinese side did not agree to sit down at the negotiating table. Recently, this conflict has not been mentioned in the currency market, especially after the countries of Asia and the Pacific region signed the agreement on the creation of the world's largest free trade area (RCEP). Among the signatories were representatives of Australia and China. This fact eased concerns about this fundamental factor.
However, the story of the "difficult relationship" resumed. It became known that Canberra decided to unilaterally withdraw from two trade agreements that were concluded between the Australian state of Victoria and China. These agreements were concluded within the framework of the large-scale Chinese initiative "Belt and Road". The initiator of breaking the agreements was the Minister of the Interior of Australia. According to her, these agreements are "absolutely incompatible with the basic principles of Australia's foreign policy." At the same time, she added that the Australian side will withdraw from two more such agreements in the near future.
Many experts believe that this is quite painful for China, primarily in the geopolitical context. China's main foreign policy project is "Belt and Road". As part of this project, it plans to create three land and two sea corridors, which should eventually cover almost the entire eastern hemisphere. In Washington, this initiative is considered in a more global context – several American politicians said that China is expanding its geopolitical influence among the countries of the Asia-Pacific region with the help of the project. Therefore, yesterday's decision of Canberra should be considered, first, through the prism of this aspect, and second, in the context of the growing diplomatic confrontation between Australia and China. It is clear that such a move by Canberra will only worsen the situation and increase the tension between the two countries. In turn, China continues to be Australia's largest trading partner, even in the face of imposed restrictions and a tightening tariff policy.
In this case, the AUD/USD bears have received a fairly significant trump card, and only the weakness of the US currency does not allow them to take full advantage of it. All the other fundamental factors are also not in favor of the Australian dollar. For example, the RBA minutes published on Tuesday reflected the "dovish" position of the Australian regulator. On one hand, the Central Bank commented positively on the latest trends in the country's economy, but on the other, they assured traders that the Central Bank will maintain its accommodative policy until the inflation and employment targets are reached, that is, approximately until 2024 (but not before the designated date). At the same time, the Central Bank is ready to increase the volume of bond purchases, if it is necessary for progress towards target levels.
We can assume that after the release of March data on the growth of the labor market (where the number of employees rose only due to the growth of part-time employment), the Australian regulator will only strengthen the "dovish" rhetoric.
Analyzing the medium-term prospects (and even more so long-term) for the AUD/USD pair, we can consider short positions, entering sales on an upward surge. The first downward target is the level of 0.7700 (Tenkan-sen line, which coincides with the Kijun-sen line at D1). A more strong support level is set slightly lower, that is, around the level of 0.7650 (middle line of the Bollinger Bands in the same time frame).
