02.07.202010:55 Forex Analysis & Reviews: AUD/USD. The case when buying is risky

The Australian dollar is paired with the US currency over the past four weeks, trading in a certain price range - 0.6790-0.6970. Responding to the current news flow, the AUD alternately pushes off from the borders of the specified range, but does not leave its borders – with rare exceptions of a temporary nature. If we consider a broader time range, the Aussie is clearly showing signs of its recovery, so in the medium term, longs – "purchases on southern declines" - are the first priority. For almost a month, this strategy worked almost flawlessly, as the AUD/USD pair regained lost positions within the above range each time.

Therefore, now that Australian currency has come close to the upper boundary of the price range, long positions look risky. The ongoing political conflict between Australia and China will not allow the bulls of AUD/USD to easily break through the key resistance level of 0.7000. Buyers already stormed this price barrier in early June, but they returned to their previous positions each time, to the already familiar price niche. After several unsuccessful attempts, the bears took their advantage and lowered the price to the lower border of the above range. Against the backdrop of a difficult relationship between Canberra and Beijing, there is a chance that the AUD will repeat its June trajectory in the near future.

Let me remind you that countries "broke the pots" in early May, when Australia called for an independent investigation of the causes of the spread of coronavirus. This proposal was supported by more than 120 countries, but was extremely negatively received by the Chinese side. Beijing accused Australia of a "political attack", although neither China nor Wuhan was mentioned in the investigation proposal. But China was mentioned by the Americans: in May, a bill was introduced in the US Senate that allows President Donald Trump to impose sanctions against China for refusing to cooperate in identifying the causes of the coronavirus pandemic. As a result, Beijing approved the investigation, but only after the pandemic. At the same time, relations between China and Australia remained strained, and this fact was reflected in trade relations.

Initially, relatively small economic sanctions followed from China (in particular, the Chinese increased duties on some types of Australian goods, while refusing to import beef), then the conflict manifested itself in other areas - for example, representatives of China called on Chinese students not to return to Australian universities "because of racist incidents," and Australia accused China of organizing cyber attacks on government servers and cyber espionage. Beijing, in turn, did not remain in debt, accusing Canberra of real, "physical" espionage - allegedly two years ago, Chinese intelligence agencies detained two Australian agents.

At the same time, the parties do not plan to sit down at the negotiating table in the near future: according to representatives of the Australian Foreign Ministry, the Chinese colleagues do not respond to their respective requests. Australian Prime Minister, Scott Morrison, said yesterday that relations between the two countries "remain extremely difficult." He said this at the presentation of the country's updated military strategy, according to which Australia will increase its defense budget by $ 48 billion over the next 10 years. In particular, Australians plan to purchase anti-ship missiles and an underwater surveillance system, as well as spend money to strengthen their cybersecurity capabilities. At the same time, Scott Morrison stressed that the United States remains the "basis of the Australian security policy."

Such a disposition does not allow counting on large-scale, and most importantly, steady growth of the Australian currency. China is one of Australia's main trading partners, so further worsening of the political conflict will negatively affect AUD's position.

This fact must be taken into account, given the fact that the AUD/USD pair approached the "ceiling" of the price range. Alternatively, you can make a rather risky trading decision by opening longs from current positions and with a target at around 0.6990-0.7000, counting on the dollar's negative reaction to Nonpharma, which will be published at the start of the American session. But in my opinion, this option is too risky (especially against the background of a good ADP report) - and the possible "catch" will be very modest. Therefore, under the prevailing conditions, a wait-and-see position seems more appropriate. It is necessary to wait for the next downward pullback (for example, to the support level of 0.6820, which corresponds to the lower line of Bollinger Bands indicator coinciding with the line Kijun-sen on the daily chart) to open long positions above the resistance level of 0.6990.