17.02.201806:40 Forex Analysis & Reviews: AUD/USD: New problems of the dollar and old allies of the aussie

A restoration of Wall Street's main indexes, the decline in the dollar index and the stable values of the "index of fear" affected not only the foreign exchange market. The commodity market also experiences positive changes, thereby indirectly supporting commodity currencies. Among them - the Australian dollar, which is now traded within the upward trend, intending to test and gain a foothold in the 80th figure.

The collapse of the stock market in the US, which occurred in early February, also reduced the prices of industrial metals. However, even at that time most analysts remained calm, perceiving everything as a temporary correction in the commodity market. The stable growth of the world economy and the continuing demand for raw materials played a deterrent role in the corrective movement.

This week, iron ore, coal, copper and nickel are showing positive dynamics, gradually returning to their peak values. The Australian dollar, which is dependent on the commodity market, responds appropriately: paired with the US currency, it pushed itself from the local low (0.7760) and began a virtually reclusive climb. The goal is the 80th figure. In January, the bulls of the pair had already made an attempt to gain a foothold in this area, and even kept the price for a week, but the momentum of the upward movement was waning and the "aussie" began to decline.

Such a scenario can be realized in February due to the problems of the quoted currency of the audusd pair. By and large, the US dollar has lost the next opportunity to restore its position. It is already obvious that the weakness of the greenback is systemic in nature: the prospect of a four-fold hike of interest rates could raise the demand for it - and then due to the decline of the stock market. The mere fact that chances of a threefold rate increase this year already has little effect on the dynamics of dollar pairs, although earlier this factor was the driving force (and accordingly, sometimes, an anchor) for the US currency. Now, the market focuses on several other factors, assessing the prospects of monetary tightening in the United States in the "background".

The recovery of the US stock market and the increased interest in risky assets are not the only reasons for the weakening of the greenback and, accordingly, the growth of the audusd. Concerns of investors caused an increase in the current account deficit and the budget in the US. In fact, the Americans got to know the reverse (negative) side of the tax reform closer to the background of the recently announced budget initiatives of Donald Trump. Although it is only a matter of prospects, the market predicted that the difficult situation might get worse.

During the four months of the new financial year (that is, from October last year to January of the current fiscal year), the budget deficit grew by more than 10% - this is the worst dynamic in the last four years. It is obvious that with the implementation of the main points of the tax reform, this situation will only be aggravated by a decrease in the corresponding revenues.

That being said, it was warned - but the market at that time was focused on the positive aspects of the reform (rising inflation, tightening monetary policy). And now, when the problem of the US trade deficit is added to the issue of the budget deficit, traders beat the alarm.

According to recent data (December data), the trade deficit widened to a record $50 billion, despite Trump's iridescent rhetoric about the outlook for foreign trade. The market once again started talking about the overvaluation of the US currency, remembering the words of Treasury Minister Steven Mnuchin about the "usefulness" of a weak dollar.

Given the data above, it is unlikely for the White House to prevent (as Trump did in Davos) further weakening of the national currency. The Fed is also constrained in any maneuvers: firstly, the base scenario of a triple rate hike is already partially embedded in current prices; Secondly, against the backdrop of the growth of the world economy, the central banks of the leading countries of the world are gradually tightening their policies, so the Fed in this context has no special advantage (compared to the period 2014-2016).

All this suggests that the Australian dollar may continue to build up its position due to the weakness of its American namesake. The only significant threat remains China - or rather, its trade relations with the United States. The problem of deficits in the US can result in the intensification of the trade war with China, which will negatively affect the Australian economy. But so far the parties have not taken any active steps: in particular, Trump did not impose restrictions on the import of steel, and China called on the US president to "work towards a common goal." The parties dispersed in the corners of the ring, assessing the consequences of the future battle, which will undoubtedly take place - this is only a matter of time.

Thus, the current fundamental background allows the audusd pair not only to test the 80th figure, but also to try to enter the region of the 81st level. From a technical point of view, the pair's bulls need to gain a foothold above 0.7990 to exceed the average line of the Bollinger Bands indicator on the daily chart. In this case, the Ichimoku Kinko Hyo indicator will form its bullish "Line Parade" signal, confirming the upward price dynamics.