The Australian dollar paired with the American currency expectedly pulled back to the base of the 66th figure during the Asian session on Thursday after the bulls of AUD/USD renewed again almost a three-month price maximum (0.6681) yesterday. Looking ahead, it should be noted that in the medium-term, both long and short positions in the pair look risky, as the Australian dollar continues to fluctuate in the 100-point price range, reacting to an array of conflicting fundamental factors.
Yesterday was very significant in this context: the bulls showed their advantage against the background of a general risk appetite throughout the whole day. But at the close of the American session, the price reversed and collapsed by a hundred points in just a few hours, updating the low of the day 0.6569. Such a sharp change of mood was due to the speech of the head of the US Department of State Mike Pompeo, who talked about the Hong Kong issue again. However, even his messages did not help the bears of AUD/USD - sellers could not change the course on the pair (for this to happen, they needed to lower the price for the Bollinger Bands midline on the daily chart, that is, under the level of 0.6500). Taking advantage of the weakness of the bears, buyers took the lead and returned the pair to the area of the 66th figure. However, the bulls are now showing uncertainty. For example, traders actually ignored today's speech by the head of the RBA, Philip Lowe, which was held in a "hawkish" way. Everyone is waiting for the resolution of the main intrigue of the week.
The state of uncertainty is not unique to the currency market. For example, the Shanghai Composite stock index, during the Asian session on Thursday, also could not determine the vector of its movement, alternating from the negative zone to the positive and vice versa. The risk of introducing additional US sanctions is due to yesterday's statement by Pompeo, which stated that Hong Kong de facto no longer has autonomy from China, which was provided for when the territory was transferred from Great Britain to the Chinese authorities in 1997.
This statement is not just a comment by a senior US official. Let me remind you that the United States passed the Law on the Defense of Democracy in Hong Kong last fall. This document requires an annual review of the favorable trade status granted by the US to Hong Kong due to the fact that this city is one of the world financial centers. In addition, the bill also allows for the imposition of sanctions against representatives of the Hong Kong and Chinese governments, which (according to Washington) are responsible for violating human rights. In other words, the US State Department must at least confirm once a year to Congress that Hong Kong maintains sufficient autonomy to maintain favorable conditions for trade with the United States.
In the light of the above remarks, Pompeo's statement yesterday can be interpreted as announcing the imposition of additional sanctions against China and the Hong Kong administration. The head of the State Department hinted at a forthcoming response, but did not specify what exactly Washington was going to do. Trump also kept the intrigue, saying that he would announce in a few days the measures that the United States plans to take to the PRC. At the same time, he hinted that we are not talking about sanctions - Washington is preparing "something powerful," which the public will know before the end of the week.
China reacted to the threats dryly: Beijing reiterated that the relationship between the central government and the autonomous region of Hong Kong is related to the country's domestic policy, which no state in the world has the right to intervene.
Amid such political battles, today's speech by the head of the RBA, Philip Lowe, went almost unnoticed. Although he voiced quite optimistic rhetoric. In particular, he said that the "coronavirus strike" on the economy was not as strong as the Central Bank had expected. For example, unemployment rates were not so bad relative to the regulator's earlier forecasts, while recovery processes have already begun. Such rhetoric suggests that the Reserve Bank of Australia is likely to maintain a wait-and-see position in the coming months and will not consider options for further easing monetary policy parameters. And at the end of this year (or at the beginning of next), it may even return to the issue of raising the rate, unless the world is trapped in the second wave of the pandemic.
Thus, the AUD/USD pair still retains the potential for its further growth - the latest Australian macroeconomic reports and the position of the head of the RBA speak in favor of this scenario. But, unfortunately, there is one "but". The US-China political conflict can put strong pressure on the pair, especially if it moves to the economic plane (for example, if the parties voice plans to revise the agreements reached). As a result, it is advisable to make trading decisions for the pair after the Hong Kong issue is resolved - at least in the context of the US response (and the possible reaction of the PRC).
From a technical point of view, the buyers of the AUD/USD pair still need to break through the resistance level of 0.6650 (the upper line of the Bollinger Bands indicator on the daily chart). While consolidating above this target, the bulls will be able to move to the 67th figure. Otherwise, the pair will demonstrate a downward pullback again to the base of the 66th price level.
