The Australian dollar, paired with the US currency, got close to an important resistance level of 0.7800, which corresponds to the upper line of the Bollinger Bands indicator on the daily chart. It has already tested this target several times this year, but it moved away from the strong price barrier each time. However, buyers of AUD/USD continued to approach this level, with breaks in between due to downward pullbacks. Such price level (0.78) is a test for traders of the pair – either they will break through this resistance level and further move to the next price range (0.78-0.80), or slightly step back (0.75-0.77). Therefore, today's price surge is important in relation to the Australian dollar's future prospects.
The primary reason for the growth was Reserve Bank of Australia's minutes from the last (February) meeting, which was released today. And although this document did not cause any hype, it gave traders confidence that the regulator will adopt stimulus measures. It should be recalled that the RBA somewhat surprised market participants last month by deciding to additionally buy back bonds for $ 100 billion. These purchases will begin in April, when the current incentive program ends.
Members of the expert community mostly expected a different result of the February meeting. Thus, the majority of analysts polled by Reuters were almost sure that the regulator would announce the curtailment of QE. Therefore, there were dovish results of the last meeting. Still, the Australian dollar resisted its impact, not declining below the level of 0.7600. And after a few days, the AUD/USD pair continued its growth. Today's publication of the minutes "retroactively" confirmed the correctness of this decision. The fact is that simultaneously with the QE expansion, the RBA voiced quite optimistic rhetoric that suggested that the "dovish" decision was the last in the context of long-term prospects.
Thus, RBA members believe that unemployment has already reached its peak and will now gradually decline, which is consistent with the latest releases in the labor market. According to Central Bank economists, Australia's GDP level will return to the level of the end of 2019 by the middle of this year. However, the situation with inflation is more problematic, but even here, the regulatory members noted signs of recovery. The RBA's own forecast is that core inflation will only reach the target of 2% by mid-2023. This fact is the main reason why the RBA plans to start raising interest rates no earlier than 2024. However, such long-term prospects have already been considered in current prices, especially since inflation indicators have recently come out in the "green" zone, exceeding the forecast values.
Overall, the main theme of the RBA minutes was the idea that the Australian economy is recovering at a faster pace than the initial forecasts. The second one is that the second COVID-19 outbreak was weaker than the first, and the Australian economy was more resilient. These messages were repeatedly voiced by the regulator in one form or another. Given this rhetoric, the market believes that the bad situation will end soon – apparently, the February action of the Central Bank will be the last in a series of stimulus measures.
The prevailing fundamental background allowed AUD/USD buyers to develop the upward trend and test the resistance level of 0.7800, however, this is extremely hard to break through.
In turn, the US dollar index continues to move around the level of 90.20. The uncertain correction attempts were immediately not worked out, as the dollar bulls cannot find a foothold: in view of the general risk appetite, key macroeconomic indicators are showing a decline (Nonfarm, Inflation, Industrial production). On top of that, many Fed members are voicing very pessimistic and dovish rhetoric, hinting at a possible expansion of QE. All this allows the AUD/USD bulls to reach the 78th mark.
Technically, the level of 0.7800 (upper line of the Bollinger Bands indicator on the daily chart) is also a key in relation to the further development of the upward trend. It is suggested to open longs either when this target is broken, or during a downward pullback in the event of an unsuccessful attack (for example, a corrective pullback occurs from the highs of the Asian session on Tuesday). On the H4, D1 and W1 time frames, the AUD/USD pair is located between the middle and upper lines of the Bollinger Bands indicator, as well as above all the lines of the Ichimoku indicator. All this indicates the priority of the upward direction. The first target is the above-mentioned level of 0.7800, and the next target is the level of 0.7900, which corresponds to the upper line of the Bollinger Bands on the W1 chart.