30.06.202010:25 Forex Analysis & Reviews: AUD/USD. RBA's optimism; Australia and China's worsening conflict

The Australian dollar paired with the US currency is stuck in the middle of the 68th figure. Many factors support the AUD, but the worsening political conflict between Canberra and Beijing prevents buyers of AUD/USD from even approaching a key resistance level of 0.7000. Such a contradictory fundamental picture forces traders to trade in flat, not leaving the boundaries of the 68th figure. Nevertheless, in my opinion, priority still remains with long positions: despite all the problems of Australian-Chinese relations, the Australian currency retains its growth potential, at least to the boundaries of the 70th figure. Now, to overcome this barrier, a more compelling reason is needed (and, accordingly, a "truce" between Australia and China), but even in the current conditions, you can earn a small, approximately 100-point growth in the medium term.

This morning, the bulls of the pair received support from China's statistics: contrary to pessimistic forecasts, the PMI for China's manufacturing sector remained above the key 50-point level, reaching 50.9 points. Let me remind you that this indicator crashed to 35 points in February, but then it began to gradually recover amid a restart of the Chinese economy. According to the general expectations of experts, the indicator was to recover only to 49.5 points in June. But, as we see, the result exceeded expectations.

As a rule, AUD/USD traders react quite sharply to key releases from China, given the dependence of the Australian economy on the Chinese. However, buyers showed a formal reaction today, and the pair remained almost at their former positions. Moreover, the bears are clearly trying to seize the initiative, directing the price to the main support level of 0.6800 (the lower line of the Bollinger Bands indicator, which coincides with the Kijun-sen line on the daily chart).

The reason for this seemingly illogical reaction is the worsening political conflict between China and Australia. The fact is that the PRC Ministry of Foreign Affairs actually directly accused the Australian government of spying against China yesterday, calling the corresponding publication in the Chinese press "the tip of the iceberg". On the eve of the publication of the Global Times (which is controlled by the PRC government), a resonant article was published stating that the Chinese special services disappointed an Australian espionage special operation two years ago. The newspaper even published photographs of objects allegedly seized from detainees (among them a map of Shanghai and a compass). Moreover, journalists claim that the Australian spies acted under the guise of diplomatic passports of the embassy in Beijing, but "they were identified and arrested."

It is worth noting here that Australia is a member of the Five Eyes intelligence alliance: this interagency network also includes the United States, Britain, Canada and New Zealand and is used to exchange information and intelligence. Therefore, the espionage activity of Australians should also be considered in the aspect of the US-Chinese confrontation - both political and economical.

At the same time, you should be reminded that the PRC state media reporters "leaked" information two years ago very on time - this suggests that the conflict between Canberra and Beijing has not only not faded, but is developing in a spiral. If at first, China was followed by relatively insignificant economic sanctions (in particular, the Chinese raised duties on some types of Australian goods, while refusing to import beef), then the conflict also appeared in other areas - for example, representatives of China called on Chinese students not to return to Australian universities "because of racist incidents."

Now, the political confrontation has acquired a slightly different color. A published article in a Beijing-controlled publication demonstrates a new round of escalation of tension between countries. At the same time, the representative of the Chinese Foreign Ministry not only did not refute the publication, but aggravated the situation saying that there is "irrefutable evidence" of Australian espionage in China. Such a news flow put pressure on AUD, so traders actually ignored the rise in the PMI for China's manufacturing sector.

However, the bears of AUD/USD are in no hurry to capitalize on the current situation. The conflict between Australia and China does not allow buyers to approach and test the level of 0.7000, but at the same time, it does not push down the price below the 68th figure. This fact allows traders to open long positions in downward recessions. Moreover, the Reserve Bank of Australia continues to provide background support to the Australian currency. For example, RBA deputy head, Guy Debelle, virtually ruled out the possibility of introducing negative rates today by listing their side effects. He also said that he does not see significant inflationary threats "from any direction". At the same time, Debelle reiterated the idea which was already expressed earlier that the Australian economy would recover quite rapidly in the second half of the year, unless the state curtailed its incentives ahead of schedule.

Thus, the Australian dollar is trading in difficult conditions. But if you don't "swing" at the 70th figure, it is quite possible to consider longs with the AUD/USD pair - at least to the first resistance level of 0.6900 (the upper border of the Kumo cloud, which coincides with the Kijun-sen line on the four-hour chart). The next resistance level is located at 0.7000 – this is the upper line of Bollinger Bands already on the daily chart.