22.07.202008:51 Forex Analysis & Reviews: AUD/USD. Greenback slumps, Aussie takes key resistance level by storm

After almost two months of siege, the Australian dollar paired with the US currency stormed the 70th price level, updating 15-month price highs along the way. At the moment, the pair is testing the 71st figure, although the upward momentum has clearly faded. The price break was caused by several fundamental factors. The US dollar played the key role, which collapsed across the market yesterday. The US dollar index fell to 94 points for the first time since March this year, reflecting a significant decline in demand from investors. But the Australian currency has found ground under its feet, thanks to the growth of the commodity market, the Reserve Bank of Australia's wait-and-see position and some glimmers of hope for the resolution of the Australian-Chinese political conflict. The overall market interest in risky assets only strengthened the upward momentum of AUD/USD, allowing the bulls to overcome the "price stronghold" in the form of the 0.7000 mark.

But let's start with the problems of the US currency. Coronavirus, which was a loyal ally of the dollar in the spring, has again turned into a merciless enemy that exerts the strongest pressure. The United States still ranks first among all countries in the world in the number of coronavirus infections and fatalities. While the daily incidence of COVID-19 is gradually decreasing in the world, this indicator has started to grow again in the US. The dollar tried to regain its position at the beginning of the week amid a sharp decline in the incidence of diseases – 45,000 infected people were recorded on Sunday, while last week the daily bar did not fall below 60,000. But, as it turned out later, the Sunday decline was due to the weekend effect: the daily increase was above the 60,000 mark on Monday and Tuesday. In addition, US President Donald Trump, who has recently, as a rule, encouraged the market with his optimistic estimates, voiced quite disturbing comments yesterday. According to him, the situation with coronavirus in the United States will significantly worsen in the near future before it begins to improve. He even urged Americans to wear masks for security reasons, acknowledging that this means of protection has a positive effect. This pessimism of the head of the White House caused concern for investors.

In addition, the prospects for a new package of aid to the US economy remain dim. Republicans are now drafting a corresponding $1 trillion bill. In turn, Democrats continue to actively insist on their 3 trillion economic support program. Their initiative was supported by the House of Representatives, but was previously rejected by the Senate. According to a number of experts, the Republican bill awaits a similar fate, only of a mirror nature: the Democrats will block the document in the Lower House of Congress. In the run-up to the presidential election, the issue of helping Americans has also taken on a political dimension. This fact sharply weighs on the dollar's situation, especially against the background of the continuing growth in the number of infected people in the United States. At the same time, the Senate and House of Representatives have less than two weeks left before millions of Americans stop receiving increased unemployment benefits.

The dollar index updated four-month lows against the background of such a fundamental picture. The increased market interest in risky assets allowed AUD/USD bulls to organize another attack on the 70th figure. Especially since the Australian currency has received its own arguments for growth.

First, iron ore, a strategically important commodity for Australia, continues to become more expensive. To date, the cost of a ton of this raw material has already exceeded 112 dollars per ton, coming close to the record values of a year ago at 120 dollars per ton. Just over the past month, ore has risen in price by almost 10%, while since the beginning of the year, the growth was 21%. The key role here was played by the factor of recovery of the Chinese economy, since China is the world's largest consumer of raw materials. It is noteworthy that despite the prolonged political conflict between Australia and China, Australians continue to actively export iron ore to the Chinese. For example, in June, the volume of deliveries amounted to 83.1 million tons, which is higher than in may (77 million tons were exported at that time).

Second, it became known yesterday that Australia will not follow the US example and will not break the free trade agreement with Hong Kong. Let me remind you that Washington recently took the first significant step towards breaking off special relations with Hong Kong in an attempt to punish Beijing for suppressing autonomy freedoms. Trump ordered the abolition of some of the privileges, canceling trade preferences in particular. Canberra did not duplicate Washington's actions, despite its long-running political conflict with China. This fact made it possible to assume that Canberra and Beijing will maintain equidistant positions, but at the same time they will not aggravate the situation.

Well, at the end of the day, the Australian dollar enjoys background support from the RBA. The regulator did not dramatize the situation, despite conflicting indicators of the labor market and the outbreak of coronavirus in Victoria. The central bank has made it clear that it is ready to continue to maintain a wait-and-see position.

Thus, the AUD/USD pair currently retains the potential for further growth, although growth prospects largely depend on the US dollar's behavior. Such an impulsive growth is usually followed by a price pullback. Therefore, long positions can be considered when correcting to the middle of the 70th figure. However, if the pair falls below the support level of 0.7030 (the Tenkan-sen line on the daily chart), the upward scenario will lose its relevance – at least in the medium term.