The AUD/USD currency pair is under strong pressure, despite the hawkish stance of the RBA. In less than a week, the Aussie has fallen over 300 pips, breaking through the strong support level of 0.7000. This target has always played the role of a "hard nut" for both bulls and bears on AUD/USD (when storming "from top to bottom" or vice versa). Even now, when the sellers were able to impulsively break through this price barrier, the pair slowed down its decline around the middle of the 69th figure.
The Aussie has attracted buyers who are trying to organize a counteroffensive with targets of 0.7000, 0.7050. It is likely that they will succeed, especially if tomorrow's report on the growth of US inflation will be in the red zone. If the data does not disappoint (not to mention the "green color"), then the downward trend of AUD/USD will receive a new impetus, which will allow traders to pull the price to the base of the 69th figure with subsequent testing of the 68th price level.
However, taking into account the existing fundamental background, we can come to a rather unambiguous conclusion: any more or less large-scale corrective pullbacks can be used as an excuse to open short positions. Selling the pair is relevant for two main reasons: the leadership of the Fed in tightening monetary policy and the outbreak of coronavirus in China. These factors are putting pressure on the Aussie, which this week hit a nearly two-year low. The last time the pair was below 0.7000 was in the spring of 2020, in the wake of the coronavirus crisis (then the pair collapsed to 0.5500).
At the moment, the COVID still plays an important factor. As you know, China is one of Australia's main trading partners, so the latest events in the former have an indirect pressure on AUD/USD. China adheres to the principles of "zero tolerance" for the coronavirus – for example, the country's authorities have quarantined 25 million people in Shanghai after several dozen cases of COVID were detected.
Now mass COVID testing has started in Beijing, the country's capital. Prior to this, several hundred cases of infection were detected in Beijing the day before, after which the authorities introduced an isolation regime in certain residential complexes and buildings, closed about 60 subway stations, banned eating in restaurants, allowing either takeaway food or order it at home. If the next stage of testing reveals a large number of asymptomatic patients, the lockdown in China's capital can be significantly tightened.
And in the country as a whole, due to the COVID outbreak, many logistics chains (including international ones) were disrupted. For example, in a number of regions and large cities, authorities have banned truck drivers from transporting goods from areas with a high and medium risk of an epidemiological situation to an area with a low level. All this will undoubtedly affect the Chinese economy. Recall that GDP growth in the first quarter was higher than expected and amounted to 4.8%. But here it is necessary to take into account that the main growth occurred in January and February of this year, while in March, when the lockdown was announced for the first time this year, growth began to slow down. Such trends rebound on the Australian dollar.
The second anchor for AUD/USD is the US Federal Reserve. Let me remind you that at the May meeting, the RBA raised the interest rate by 25 basis points at once (against the forecasts of a 15 basis point increase), while voicing rather hawkish rhetoric. The head of the Australian regulator made it clear that the Central Bank will raise interest rates at subsequent meetings, in response to rising inflation. According to general forecasts, following the results of the June meeting, the Reserve Bank will immediately increase the rate by 30–40 points.
And yet, despite such a hawkish attitude, the divergence of the positions of the Fed and the RBA has not gone away. The American regulator intends to raise interest rates much more aggressively – at least by 50-point steps over several meetings. Also, some experts do not exclude the option of a 75-point increase in June. Much will depend on the dynamics of the consumer price index in April and May. We will know the April numbers tomorrow, so until then, it is best to take a wait-and-see attitude for the AUD/USD pair. If US inflation disappoints, buyers will certainly take the opportunity to return to the area of the 70th figure. But if the indicators come out in the green zone, the downward trend is likely to resume with renewed vigor.
Given the high degree of uncertainty, there is no need to rush to open orders now. However, regardless of tomorrow's data, bearish sentiment will prevail in the medium term. Therefore, any corrective surges in the pair can be considered as a reason to enter sales. The main "nodal" price points are 0.7000, 0.6950, and 0.6900 (the lower line of the Bollinger Bands indicator on the D1 timeframe).
