AUD/USD. Australian dollar is under pressure again: Australia supports the "anti-China coalition"

The AUD/USD pair was under pressure again. On Monday, it increased to the level of 0.7750 (middle line of the Bollinger Bands indicator at D1), but left this target. During Tuesday's Asian session, the Australian dollar came under significant pressure, which resulted in the decline of the pair to the upper border of the Kumo cloud (0.7685) in the same timeframe. To simply put it, the next upward rally has now faded into the background and the sudden change in the fundamental background allowed the AUD/USD bears to take control of the situation.

Relative to this, the Australian dollar has become a victim again of Canberra's political decisions. It should be noted that Australia has been in a slow cold war with China for almost a year, since the Australian authorities initiated an investigation into the emergence of coronavirus in China. From that point on, Beijing has been gradually strict to Australians, resorting to political and economic measures (ban on coal imports, increased customs checks, increased tariffs on a number of goods, and so on). Despite Canberra's attempts to establish a good discussion, the Chinese side did not agree to negotiate. This rising conflict has been neglected heavily in the currency market lately, especially after Asia and the Pacific signed an agreement to create the world's largest free trade area (RCEP) late last year.

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However, this political conflict has reappeared again today, since Australia was reported in support of international sanctions against China. In fact, this also weakened the Australian dollar, which showed a downward trend during the Asian session. It is worth noting that the EU, UK, US and Canada simultaneously imposed sanctions last night against Chinese officials involved in violations of the rights of Muslim Uyghurs in Xinjiang. According to human rights activists, there are at least 1 million Uighurs being held in so-called "re-education camps'' in the district. The international non-governmental organizations said that this ethnic group is discriminated against by the official authorities in order to assimilate them. However, China denies the claims, calling them untrue. Moreover, Beijing already imposed retaliatory sanctions yesterday, applying restrictions against some members of the European Parliament, diplomats and a number of legal entities.

Despite the history of conflicting relations between Canberra and Beijing, Australia decided to support the "anti-China coalition" by publicly expressing its consent to the imposed sanctions restrictions. This increased the pressure on the Australian currency, although the Australians expressed its support verbally only, without resorting to sanctions on their part. It is clear that such a "harmless", but rather symbolic step, will increase tensions between the two countries. In fact, the market started talking about the fact that Australia and Beijing may restart their relations amid the recession of the coronavirus crisis and the change of power in the US. However, today's political decision in Canberra has neutralized such assumptions.

In turn, the US dollar has strengthened its positions all over the market. The US dollar index approached the borders of the 92nd mark again, reflecting the increased demand. In view of an almost empty economic calendar, the focus of the market is on the rhetoric of the Fed Chairman, Jerome Powell, who addressed the US Congress. He did not say anything new, since he already discussed the important things after the results of the March meeting. However, his rhetoric was more optimistic this time. He acknowledged that the economic situation in the US has improved noticeably and the key indicators of economic activity and employment have recently begun to sharply rise. Therefore, the recovery process is happening, firstly, faster than expected, and secondly, on an upward course. But at the same time, Powell did not hint at an early curtailment of QE or a rate increase before 2023. Rather, he limited himself to a general and standard phrase: "The Fed will continue to support the economy for as long as it takes." Against this background, Powell's speech had a minimal impact on dollar pairs – for example, traders of EUR/USD and GBP/USD did not react much to his speech. But in terms of the AUD/USD pair, this fundamental factor strengthened the mood of the bears.

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From the point of view of technical analysis, the pair is between the middle and lower lines of the Bollinger Bands indicator in the daily time frame, which indicates that the downward scenario is a priority. At the moment, the price is testing the upper border of the Kumo cloud (0.7685 level) in the same time frame. After breaking through this target, short positions can be considered to two closest targets – 0.7625 (lower line of the Bollinger Bands) and 0.7600 (lower border of the Kumo cloud on the same timeframe).

The material has been provided by InstaForex Company - www.instaforex.com

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