The results of RBA's March meeting, which were announced during the Asian session, failed to support the Australian dollar – the AUD/USD pair stayed in the middle of the 0.77 price level. However, the pair has recently increased volatility. Initially, buyers managed to reach the psychologically important level of 0.8000, but could not consolidate above this target. After that, the AUD/USD bears took control amid the US dollar's general strengthening. As a result, the pair collapsed by more than 300 points in 2 trading days.
The downward pullback from the resistance level of 0.8000 was quite natural, although slightly rapid: the Australian dollar was in the 80th figure area for only three hours. After that, the pair's bears offered counter resistance, taking advantage of the US dollar index growth. Currently, the pair is stuck in a flat, while the results of today's RBA meeting were both predictable and extremely contradictory. The words of the regulator's members was more restrained than optimistic, despite the success of the Australian economy. In addition, the RBA announced yesterday a doubling of the pace of buying long-term bonds, which put additional pressure on the AUD. In any case, the AUD/USD pair holds back the blows and maintains its positions – unlike other dollar pairs (in particular, EUR/USD and GBP/USD), where the greenback was way more superior.
Let's talk again about RBA's results of the March meeting. As expected, the regulator kept the parameters of monetary policy in the same form, so traders' main focus was on the rhetoric of the accompanying statement. RBA members' rhetoric was mixed: The central bank was trying to maintain a balance, although traders clearly expected to hear more optimistic rhetoric given the latest macroeconomic reports.
On the one hand, the Reserve Bank acknowledged that the Australian economy is recovering at a stronger pace than previously expected. In particular, wages in the second half of the year are expected to be significantly higher than at the current moment. The regulator also noted a positive trend in the growth of the number of employees and a decrease in the unemployment rate. These are actually all positive remarks, but the accompanying statements were restrained and dovish. The regulator clearly stated again that traders should not expect tightening monetary policy anytime soon. In particular, they indicated that it will consider raising the rate only when the key macroeconomic indicators (inflation and the labor market) reach their target levels, which will not happen until 2024 based on preliminary estimates. Accordingly, markets should not expect any decisive action from the RBA over the next two to three years. They also emphasized that the Central Bank will continue to carefully monitor the situation with the yield of government bonds. In this context, the Central Bank reminded that it increased bond purchases on Monday.
In other words, the results of the March meeting of the Reserve Bank of Australia was not surprising, and at the same time, the main theses of the accompanying statement did not encourage the strengthening of the Australian currency. In this case, the Aussie continues to trade in the US dollar's path, which is guided by Treasury yields. However, geopolitical factors that also supported the US dollar disappeared: US airstrikes on the positions of pro-Iranian forces in Syria remained without a mirror response (Iran and Syria limited themselves to statements on the diplomatic line), and the US intelligence report on the assassination of an opposition Saudi journalist did not lead to personal sanctions against members of the royal family, including against the crown prince, who was directly accused of organizing the liquidation of Khashoggi.
Thus, the focus remained on the yield of US government bonds. It is worth noting that Treasury yields are growing "in spite of" rather than "due to". Fed members assure the markets that the regulator will allow the economy to "warm up" before starting to tighten monetary policy, although the parameters of monetary policy may only be changed in the direction of easing.
Nevertheless, investors draw their own conclusions from the current situation, pushing bond yields up, while increasing the dollar's demand. The behavioral logic here is based on several forecasts of economists (in particular, Bloomberg Economics), who say that the US economy will reach pre-crisis levels in the second half of this year due to mass vaccinations against COVID-19, the adoption of a large-scale aid package by congressmen and the restoration of business activity. Such prospects, paired with the growth of inflation expectations, provoke rumors that the FRS, contrary to its own assurances, will be forced to curtail QE ahead of schedule and start considering raising the interest rate (not in 2024, as it is declared now, but much earlier). In view of such rumors, the yield of treasuries continues to go up – the yield of 10-year US bonds rose by 0.369 percentage points last month, which is the strongest growth rate since the 2016 collapse.
Thus, the Australian dollar is caught between two factors. On the one hand, there is the US dollar, which continues to be situationally in demand, while on the other hand, there are numerous fundamental factors that provide indirect or direct support for the Australian currency. Among them are the RBA's wait-and-see attitude, growth of the commodity market, recovery of key macroeconomic indicators and the massive COVID vaccination in Australia.
All this suggests that as soon as the USD dollar relaxes, the AUD will recover its lost points, returning to the borders of the 0.80 level. And although it is still too early to talk about breaking through this target, it is unlikely that AUD/USD buyers will test this resistance level again in the medium term. Therefore, the current recession can be used as a reason to open longs with the first target set at 0.7850 (Tenkan-sen line on the daily time frame). The main upward target is the level of 0.7950 (upper line of the Bollinger Bands in the same timeframe). Its breakdown will open the way to the borders of the 80th figure.
