30.12.202010:11 Forex Analysis & Reviews: AUD/USD. Iron ore's records and US dollar's vulnerability

The Australian dollar is ending this year positively. It managed to update its multi-month high and reached the level of 0.7664 before the New Year's holiday. The last time the AUD/USD pair was at such price highs was in April 2018. Now, buyers clearly intend to test the price level of 0.77 in the near future, indicating the nearest prospects.

On the one hand, current price fluctuations should be treated with a certain degree of caution, since traders trade in conditions of low liquidity. It should be noted that a narrow market increases the sensitivity of currency pairs – even a minor information can provoke increased volatility. On the other hand, the current growth of the Australian dollar fits accordingly into the general outline of the latest trends. Let's take the AUD/USD weekly chart as an example: Since November started, the pair has been growing almost without pullback, rising by almost 700 points in two months. Therefore, the investors should not be confused with the pre-New Year growth of the Australian dollar, which continues to gain impulse amid a weakening US dollar.

The upward trend of the AUD/USD pair is primarily due to the growth of the commodity market and the general demand for risky assets. Moreover, the current optimism in the market is putting pressure on the US currency: the US dollar index declined below the 90th mark again, reflecting another massive sell-off.

Now, let's start with events in the US. It can be recalled that Donald Trump approved a stimulus package totaling $ 900 billion on Monday. Despite criticizing this bill, he still signed the document, while asking congressmen to increase the amount of direct payments to Americans, that is, from $ 600 to $ 2,000. Oddly enough, the Congressmen listened to the President's requests and voted for the corresponding amendment. This is that rare moment when Trump's position coincided with the position of the representatives of the Democratic Party. However, the above amendment has so far been approved by the Lower House of Congress only – the House of Representatives. The Democrats are the majority there, while on the contrary, the Republicans are the majority in the Senate. The Upper House of Congress decided not to rush to a vote, postponing the issue until January. However, this fact did not disappoint investors: the markets are still dominated by optimistic sentiment, as proven by the key indices of the US stock market.

The Australian dollar, in turn, is receiving additional support from the commodity market. Last week, iron ore rose to nine-year highs, while on Monday, the price of a strategically important raw material for the Australian economy rose by almost $ 177 per tonne. At the moment, this indicator has slightly reduced, but it still has an upward dynamic. Since the beginning of the year, iron ore has almost doubled in price. Experts believe that its price will continue to grow in the first half of next year due to several factors:

For example, Brazil significantly reduced ore exports (including due to the collapse at the Vale mine). At the same time, Brazil is the second largest global exporter of this raw material after Australia. In turn, the rainy season begins in Australia – due to adverse weather conditions, production at the mines is limited. Additionally, the tense relations between Beijing and Canberra also plays a vital role. There are rumors circulating in the market that China may introduce a tax next year that can be levied on the supply of Australian iron ore. Amid such (possible) prospects, Chinese industrialists are creating additional reserves of raw materials as soon as possible.

The current fundamental picture pushes the AUD/USD pair up to new heights. The narrow market only strengthens the upward dynamics, allowing buyers to open the next price ranges. This trend will continue in the medium-term, especially given the vulnerability of the US currency.

In other words, the upward trend of the AUD/USD pair is still in force. From a technical point of view, the pair on all higher time frames (from H4 and above) is either on the upper line of the Bollinger Bands indicator or between the middle and upper lines, which indicates the priority of the upward direction.

Meanwhile, the Ichimoku indicator in time frames from H4 to W1 (except for the monthly chart) formed a bullish signal "Parade of Lines" when the price is above all the indicator lines, including above the Kumo cloud. This signal indicates a bullish mood. The strongest resistance is at 0.7700 – upper Bollinger Bands line on the daily TF. It is important for buyers to break through this target in order to consolidate within the level of 0.77 and plan future prospects.