The Australian dollar paired with the US dollar continues to update the annual lows, heading to the bottom of the 75 figure. The weakening of the Australian currency is an expected event, but in this case, the aud/usd pair can break through the support level of 0.7530, sinking into a new price range of 0.7210-0.75. The downward dynamics of the pair is gaining momentum due to the strengthening of the greenback, a decline in the commodity market and negative data on the Australian labor market.
On Wednesday, the yield of 10-year US Treasury bonds has overcome the psychologically important three-percent level. The indicator is at five-year highs, putting a lot of pressure on the stock market and simultaneously supporting the growth of the US currency: the Treasury yield at the moment is 3.018%, while the dollar index is at 91 points. It is worth noting that the economic calendar of the currency market is empty today, and in Australia and New Zealand they celebrate the national holiday (ANZAC Day). Therefore, traders of the aud/usd pair are oriented mainly to the dynamics of the Treasury and the commodity market.
Both factors play against the Australian dollar. Treasury yields are growing for several reasons. Among the common fundamental factors - the reduction of geopolitical tensions and a possible US deal with China. On Tuesday, Donald Trump called his North Korean counterpart Kim Jong-un "a good, open guy" on the eve of their historic meeting (due to take place in early summer). This indicates the readiness of North Korea to complete denuclearization.
In turn, the "Chinese front" is also preparing for victories. On Tuesday, the US president confirmed rumors that Treasury Secretary Steven Mnuchin would "visit China in a few days" to hold talks. At the same time, Trump mentioned that there is a high probability of a deal - otherwise the American leader threatened to implement his plans to impose tariffs of up to one hundred billion dollars on Chinese goods.
However, the geopolitical successes of the US are not the only reason for the rise in the price of the dollar. In America, inflationary expectations are rising amid an increase in the budget deficit and a likely interest rate hike at the Fed's June meeting. The indicator of consumer confidence in the US, released on Tuesday, came out better than expected, falling to 128 points. Such dynamics is an additional signal of an early tightening of monetary policy. If the Fed raises the rate in June, then the probability of a fourfold hike in the rate within this year will increase. The members of the Federal Reserve do not confirm most of it, but they do not exclude such a scenario. The officials of the Federal Reserve are currently focuesed mainly on the risks of a large-scale trade war between the US and China, while relatively weak inflation has receded into the background.
In general, many regulator members (or rather, most of them) are confident that US inflation will reach the target level this year. Among the main reasons for the increase in price pressure are the successes of the oil market. "Crude Oil" Brent remains in the level of 74 dollars, despite the American Petroleum Institute's (API) report on the growth of stocks in the US. On Wednesday, an official report from the Energy Ministry will be published: according to forecasts, the volume of crude oil reserves will decrease again, thus supporting oil quotes.
Thus, the set of positive factors continues to push the Treasury yield upwards, allowing the dollar to also gain momentum. In all dollar pairs, the US currency is more or less dominant, especially against the backdrop of an empty economic calendar.
The Australian dollar, in turn, loses its positions not only against its American namesake. Last week, relatively weak data on the Australian labor market was published - unemployment remained at the same level, and the number of employees increased by only four thousand, despite the optimistic forecast of 20 thousand.
Another factor that puts pressure on the aud/usd is the "dovish" protocol of the last meeting of the Reserve Bank. The rhetoric has become more cautious and restrained: the regulator noted the slowing of the labor market and the increased uncertainty on the markets. In addition, the RBA again criticized the current exchange rate of the national currency, which slows down inflationary processes. In other words, the regulator made it clear that in the foreseeable future (at least within this year) monetary policy will remain the same.
The Chinese macroeconomic data also exerted some pressure on the "aussie". The indicator of China's GDP has reached the level of forecasts, but industrial production has significantly decreased. The indicator grew only by 6.0% after the growth in the previous period by 7.2%.
The cost of iron ore, which plays a strategically important role for Australia, also declines. Two months ago, a ton of ore was worth about $80, whereas now this figure has dropped to $64. In addition, the largest industrial giant BHP Billiton recently announced that it reduces the level of iron ore production this year due to internal problems in the railcar unloading system.
Thus, the aud/usd pair is declining, not only because of the widespread appreciation of the US currency, but also due to the weakness of the Aussie. Such a fundamental picture indicates the priority of a downward trend for the pair. The first level of support in the medium-term trade is 0.7530 (the bottom line of the Bollinger Bands indicator on the weekly chart). If the bears push this level, the next target will be the price of 0.7250 (the bottom line of Bollinger Bands on the monthly chart).
