The US dollar index continues to decline, returning to January's range of 90.07 - 90.70, wherein it fluctuated for several weeks, alternately pushing off from its borders. The general weakening of the US currency was also reflected in the major dollar pairs. During the Asian session, there was an increased volatility in the currency market: the EUR/USD pair broke through the resistance level of 1.2060 (Tenkan-sen line on D1) and approached the borders of the 1.20 mark. Meanwhile, the GBP/USD pair fully updated its 32-month price high, being in the area of the 38th level.
The AUD/USD pair did not stand aside either, which is rising for the third trading day in a row, after recently falling to two-month lows. Since Friday, it has already managed to gain more than 200 points, and has already returned to the price range (0.7710-0.7790), from which it was traded throughout January. Unlike many other dollar pairs, the Australian dollar is not only growing due to the weakening of the US currency, but also shows character (including in cross-pairs), amid a favorable fundamental picture.
It should be recalled that the Reserve Bank of Australia expanded the volume of the incentive program, deciding to additionally buy back bonds for $ 100 billion, after the results of its last meeting were released. These purchases will begin in April, when the current incentive program ends. Such action was quite unexpected on the part of the RBA, since most experts were confident that the Central Bank would announce that the stimulus program would end this spring. Despite such a "dovish" outcome of the February meeting, the Australian dollar resisted its impact – AUD/USD pair remained above the support level of 0.7600.
This is mainly because of RBA's optimistic rhetoric. The members of the Central Bank emphasized that this step was the last "dovish" decision. This assumption is consistent with RBA forecasts for the current year and 2022. According to the Central Bank, the level of Australia's GDP will return to 2019 level by the middle of this year. At the same time, the dynamics of inflation and wages are expected to grow positively, but slowly. Therefore, if the key macroeconomic indicators follow the set course, the regulator will maintain a wait-and-see position in the near future. It is also noteworthy that in additional comments, RBA's Chairman, Philip Lowe, ruled out the option of reducing the interest rate in the negative area. Meanwhile, the latest data on the growth of Australian inflation and the labor market were released in the positive area, reflecting the recovery processes.
Such a fundamental background allows the AUD to rise, including in pair with the USD. However, it still depends on the US currency, moving in the wake of the quoted currency. The sharp strengthening of the US dollar, which was observed in late January and early February amid turbulence in the stock market and uncertainty about Biden's "American Rescue Plan", did not allow buyers of AUD/USD to develop the upward trend. The dollar bulls were in control, dominating the entire market.
Since last Friday, the situation has changed. Several fundamental factors such as disappointing Nonfarm, growth of the stock market and Congress' adoption of a budget resolution, which may lead to the approval of the US economy aid package, lowered the demand for the safe US dollar. In addition, key data on the growth of US inflation will be published tomorrow, and a little later, Fed Chairman Jerome Powell is expected to make a speech, who will comment on the current situation in the monetary policy prospects.
Ahead of these events, the US dollar was hit by a wave of sales, allowing the AUD/USD bulls to strengthen the upward impulse. It should be noted that most experts predict positive dynamics of US inflation (weak, but still growth), so if the data is released in the "red" zone, then the US dollar will come under additional pressure, while the Australian one will be able to test the level of 0.78. This is the main upward target. Last month, the pair's buyers tried to consolidate in this price area, but they failed. Therefore, it is early to discuss higher price values at the moment.
Nevertheless, long positions can be considered from the current levels of the AUD/USD pair in the medium term, with the main target set at 0.7800 (upper line of the Bollinger Bands indicator on the daily chart). On both the daily and weekly charts, the price is between the middle and upper lines of this indicator, as well as above all the lines of the Ichimoku trend indicator, which formed a bullish signal "Parade of Lines". All this indicates the priority of the upward trend.