13.10.201701:11 Forex Analysis & Reviews: AUD/USD: The Australian Dollar has temporary allies

Against the backdrop of "dovish" statements by officials of the Reserve Bank of Australia, the AUD/USD pair received unexpected and immediate support from several sides. This allowed the "Aussie" to move away from the support level and show a pattern, heading toward the 79th figure. And although the general fundamental picture for the Australian dollar remains suppressed, the current situation makes it possible to profit at a price correction. Let's consider the main factors that influenced the growth of the pair.

First of all, the commodity market pleased. The cost of copper increased sharply, after a decline and a prolonged price stagnation. To date, a ton of copper (LME.Copper, USD per ton) is estimated at $ 6,850, while at the end of September the price stood at $6,435. Traditionally, the price direction was influenced by China, which in late summer announced that it would limit the import of scrap metal. We are talking about the updated standards of environmental requirements, which will be presented by Chinese metallurgical enterprises for the acceptance of scrap of ferrous and non-ferrous metals. In particular, China plans to significantly reduce the level of contamination of imported scrap (from 1.5% to 0.3%), and to reduce to 0.3% the threshold of waste for all goods imported into the country. Such restrictions will increase the metal deficit in China, and similar prospects have already increased the demand for raw materials.

Also, the growth of the commodity market was affected by the release of the rating agency Fitch Ratings, which provided updated estimates of the value of basic metals. The agency's analysts revised their previous forecast upward relative to the cost of copper, aluminum, nickel and zinc. In addition, Fitch analysts improved the outlook for a strategically important raw material for Australia - iron ore. The forecast is raised for the current year to $65 per ton, and for 2018-2019 - up to $55 per ton from $45 per ton. To date, the price of a ton of iron ore is 59 dollars. Such optimistic prospects supported the commodity market and indirectly influenced the growth of the Australian dollar.

Also, the AUDUSD pair received unexpected support from the Melbourne Institute of Applied Economics, which published a positive index of inflationary expectations. Published figures were higher than official forecasts and are contrary to the position of the Reserve Bank of Australia. It should be noted that at its last meeting, the regulator's officials announced a slow rise in wages and an overvalued exchange rate of the Australian currency. All this, in the opinion of the members of the RBA, exerts pressure on inflationary dynamics. And one of the members of the Australian central bank, Ian Harper, even allowed the possibility a reduction in the interest rate, if such a trend would continue. After such pessimistic assessments, it was quite unexpected to see data that Australian consumers and the business sector expect inflation to increase to 4.3% over the next year. This fundamental factor has a limited impact on the pair, but in the context of previous statements by the RBA, it helped the price recover.

Another important nuance is the general weakening of the US dollar amid the disappointing minutes of the September meeting of the Fed. Members of the regulator did not demonstrate the expected resolve, despite the solid market confidence that the rate will be raised again in December. The Fed again noted the weak inflation, despite Yellen's assurances that the regulator would not look back at the slow pace of price pressures.

Nevertheless, the Fed members were concerned about a rather prolonged period of weak inflation. After the publication of the minutes, the probability of an increase in the rate at the December meeting decreased from 92% to 87%, and the focus of attention shifted to the US consumer price index, the release of which is scheduled for tomorrow. The consensus forecast is quite optimistic: according to analysts, September inflation will continue to grow - up to 0.6% in monthly terms and up to 2.3% in annual terms. If the forecast is confirmed, the probability of the December rate hike will approach 100% and the dollar will return the lost positions. But if the release disappoints the market, then (in particular) the AUDUSD pair will continue its upward movement due to the weakening of the greenback and the growth of the commodity market.

In technical terms, the AUDUSD pair on the daily chart is between the lower and middle lines of the Bollinger Bands indicator, which shows an extended channel. Also the price is on the Tenkan-sen line of the Ichimoku Kinko Hyo indicator. And the Ichimoku Kinko Hyo cloud itself is above the price chart. If the price is fixed above the middle line of the Bollinger Bands indicator (that is 0.7870), it will signal the continuation of the upward movement to the resistance level of 0.7980 (the upper limit of the Kumo cloud). Well, if the price is fixed under the Tenkan-sen line of the Ichimoku Kinko Hyo indicator, then it will open its way to the second test of the support level 0.7725 (the bottom line of Bollinger Bands on D1).