The Australian dollar continues its upward track: the AUD/USD pair has grown by almost 400 points in 2.5 weeks, reaching 0.7530, thereby updating the multi-month price high. The last time the aussie was at this height was last summer, when the coronavirus crisis once again began to decline. There are completely different problems on the agenda today, already of a geopolitical nature. The shadow of a possible global conflict follows traders, determining their mood and influencing trading decisions. Any gaps in this context (even temporary ones) allow risky assets to gain momentum, due to a decrease in anti-risk sentiment.
Given the almost complete information vacuum that has formed around the negotiation process between Russia and Ukraine, the focus of the market's attention has shifted to several other fundamental factors, also of a geopolitical nature. As you know, a NATO summit was held in Brussels this week, at which, in particular, Poland's proposal to introduce a "peacekeeping contingent of the North Atlantic Alliance" into the territory of Ukraine was discussed. Moscow reacted to this proposal accordingly. After that, there was an increase in anti-risk sentiment in the foreign exchange market. On the eve of the summit, the safe dollar strengthened its positions again, and the AUD/USD pair suspended its growth in anticipation of the resolution of this issue. And although many experts were initially skeptical about this idea of the Poles, a certain intrigue persisted. There was also tension, which allowed the greenback to hold its positions throughout the market.
However, following the results of the summit, Warsaw was not supported on this issue. The key members of the Alliance (in particular, the United States and Germany) actually made it clear that they would not agree on such a scenario. Secretary General Jens Stoltenberg was more blunt, saying that Poland's proposal to deploy peacekeeping forces on the territory of Ukraine "did not find support" in the North Atlantic Treaty Organization. Against the background of these statements, the dollar sank a bit again, and risky currencies were able to launch a counteroffensive. Dollar pairs reacted differently to the changed fundamental background, but the main beneficiary of the situation was the aussie.
It is worth noting that the Australian dollar paired with the dollar, on the one hand, is in the shadow of the greenback, but, on the other hand, has every reason to float independently. The aussie receives support from both macroeconomic reports and the Reserve Bank of Australia, which has recently demonstrated a hawkish attitude. Therefore, as soon as the US dollar gives the go-ahead, the aussie rushes into battle, updating all new price horizons.
Let me remind you that the latest data on inflation and the Australian labor market turned out to be on the aussie's side. Inflation in the 4th quarter of last year (there are no more recent figures yet) rose to 1.3%, surprising many experts and analysts (most of them expected a more modest increase - up to 0.9-1.0%). Investors were also pleased with the Australian labor market. The unemployment rate in February remained at 4.2%. Even on the eve of the pandemic, for many months, this indicator fluctuated in the range of 5.0%-5.4%. In other words, unemployment in Australia has not only returned to pre-crisis values (and significantly ahead of time), but has also been marked at multi-year lows. The last time the unemployment rate was at this level was in July 2008.
It is noteworthy that the rhetoric of RBA Governor Philip Lowe is also gradually changing towards tightening. Earlier, he assured that the central bank would not tighten monetary policy "until actual inflation is steadily settled in the target range of 2-3%." He also complained about the weak growth in the level of wages (relative to the growth of inflation).
However, in recent weeks he has changed his mind. And although Lowe still talks about the unstable nature of inflationary growth, he still admits the option of tightening monetary policy already within the current year.
All of the above fundamental factors are pushing the Australian dollar up. But only on one condition – if the US dollar "allows" it to be done. Any surge in anti-risk sentiment pulls the AUD/USD pair down, although the downward pullbacks here can be viewed through the prism of a temporary correction. And yet – the greenback is quite capable of "pulling back" the aussie. For example, bulls of the pair moved away from the reached highs and could not test the resistance level of 0.7550 on Friday. The aussie retreated, reacting to the comments of the head of the Russian delegation at the talks, Vladimir Medinsky. He said that the positions of Russia and Ukraine "are converging on minor issues, but on the main ones they are marking time." Such a signal allowed the safe dollar to strengthen its positions again. Against this background, the AUD/USD bears retreated to the base of the 75th figure.
And yet, in my opinion, in the medium term, the aussie will once again be able to show character – at least in the context of testing the nearest resistance level of 0.7560 (the upper line of the Bollinger Bands indicator on the daily chart). After all, according to Medinsky, negotiations are still continuing – the next round will take place on Saturday. Therefore, traders are likely to quickly "win back" the last fundamental factor and go on the offensive again, getting close to the 0.7560 mark. Trend indicators also speak in favor of longs: on the D1 timeframe, the pair is located between the middle and upper lines of the Bollinger Bands indicator, as well as above all the lines of the Ichimoku indicator, which formed a bullish Parade of Lines signal.
