The Australian dollar paired with its American namesake for the last week actively assaulted the 80th figure, following the upward trend. For several days the price was fixed in this area, however today the bears seized the initiative, provoking a corrective decline.
On one hand, this is quite a logical result: the pair's bulls could not consolidate the success, moving even to the middle of the 80th figure. On the other hand, there is no clear reason for such a sharp decline: the oil market continues to show growth, the Chinese economy closed in 2017 with an increase in GDP by 6.9%, and key indicators of the Australian economy as a whole are not a cause for concern.
What is the cause of the downward impulse? As it turned out, the Australian reacted very negatively to the decline in the cost of iron ore on the London Metal Exchange. The cost of raw materials per day decreased by almost 1.5%, although the rest of the goods (zinc, aluminum, copper, coal) showed either neutral or positive dynamics.
However, the decline in the cost of copper is only a catalyst for the bearish impulse of AUDUSD. The true reasons are somewhat different. The fact on the table is the US president's possible move on the report of the Ministry of Trade on the consequences of steel imports in the context of national security of the country.
This document can become the basis for the introduction of strict protectionist measures in the form of manual regulation of the market. It is noteworthy that Trump can "revive" the norm of the law, which was adopted in the period of the so-called "cold war" between the USSR and the USA (we are talking about Section No. 232 of the Law on Expanding US Trade). Obviously, such steps are part of an undeclared trade war between the States and China. It is China that will be under the main focus of new restrictive measures, since, according to some sources, the investigation submitted to Trump concerns the supply of steel from China.
The US Department of Commerce refused to publish any details of its report. However, it is clear that Trump can approve unilateral measures to limit imports. Earlier (in July last year), the US President reported on the need to combat the dumping of cheap steel from "foreign competitors", including, and referring to China. Then he clarified that he has two ways of influencing: either the introduction of new customs duties, or the introduction of quotas on steel imports. Also, Trump did not rule out the use of two levers of influence simultaneously.
The Chinese steel industry is already under certain pressure due to the introduction of strict environmental standards, therefore, restrictive measures by the US can have serious consequences for the country's economy. In turn, Australia will also be among the victims, as China is the largest commodity market for raw materials (primarily iron ore).
Therefore, now, when there is a possibility of putting into operation "Section №232", the Australian dollar is under constant (so far, background) pressure. The fact of the declining cost of iron ore today only reminded traders that the Australian economy is in uncertainty because of the above circumstances. This is quite enough to weaken the Australian dollar throughout the market, and especially paired with the US dollar, which is trying to restore its position.
The US Department of Commerce officially provided a report on the impact of imports of steel on January 12. Now, Donald Trump has 90 days to make the appropriate decision. When exactly this happens - is unknown. The White House only reported that the president will announce the decision "in time." It can be assumed that this report of the Ministry of Trade is an element of a complex political combination that goes beyond purely trade relations between the USA and China. After all, we must not forget that China is the main, most influential mediator in the negotiations with North Korea. If this factor is taken into account, Trump's likely reaction to the report provided by the Ministry of Trade will depend not only on economic arguments.
The market, as a rule, switched to such indirect fundamentals during the news lull. The economic calendar for the AUDUSD pair is practically empty, so the downward correction may drag on until Friday, when the US GDP will be published. If the US economy shows weak growth (quarterly forecast - 3%), the Australian can again test the 80th figure - already at the expense of the weakness of the US dollar.
Moreover, technically the pair remains within the upward trend, as it holds above 0.7880 (the middle line of the Bollinger Bands indicator on D1). Therefore, at this time, you can use corrective declines as an excuse for opening long positions: the Australian has a chance to recover until Trump reacts to the report and the US dollar is under the general pressure of the fundamental factors.
