The uptrend of the AUD/USD has stopped. The Aussie settled in the 0.75 area in a sideways motion, reflecting the hesitancy of buyers. The pair bulls need to overcome the next resistance level at 0.7560, which corresponds to the upper band of the Bollinger Bands indicator on the daily chart. This will create additional upside momentum for the pair. Yet, traders are hesitating to test this target. While the overall technical picture supports the Australian dollar, a lot will depend on fundamental factors. Key geopolitical events may shift the market sentiment in any direction. Traders will either reach a new high or retreat towards the support level of 0.7460 (the middle band of the Bollinger Bands indicator, coinciding with the Kijun-sen line on the four-hour chart).
Despite a temporary halt of the upward movement, the pair is still trading in a well-pronounced uptrend. Over the past two weeks, AUD/USD has risen by almost 400 pips. This was a steady and confident rally. The price dynamics of the last few days also indicate the dominance of the bullish trend despite some minor pullbacks. Market participants do not avoid long positions and even use large corrective pullbacks to open more buy trades.
Notably, the Aussie feels confident even against a fairly strong greenback, who takes advantage of the current situation. Geopolitical instability, as well as the coronavirus outbreak in China, pushes the US currency higher, so bears are making regular attempts to fight back, although with limited potential.
As reported today, China has announced a lockdown in Shanghai, the most extensive in two years. Over the past ten days, the number of new coronavirus cases in the city has gone up from 700 to 35,000, with a record rise in patients with no symptoms. According to local media, a large-scale lockdown will happen in two stages, with the eastern side of the city coming first and then followed by the western side. Residents of the metropolis will have to stay at home, and offices and businesses that are not considered essential will be closed. Public transport will also be suspended. Shanghai, a city of some 25 million people, is considered the financial capital of China. Therefore, the so-called coronavirus factor puts pressure on the AUD/USD pair, limiting its upside momentum.
Traders are also cautious ahead of the next round of negotiations between Russia and Ukraine. Yesterday, it was reported that the two sides will meet in Turkey. None of the representatives of the delegations gives any forecasts regarding this meeting, so the uncertainty remains strong. According to preliminary data, face-to-face negotiations will begin tomorrow morning and may last until March 30. On the one hand, the lack of information about the negotiation process continues to play into the hands of the dollar bulls. Yet, the very fact of live negotiations acts as a kind of counterbalance. As a result, traders are reluctant to take action, so the pair is simply fluctuating in the range of 0.7505-0.7540.
In general, AUD/USD still has great upside potential. The Aussie is able to assert strength thanks to some internal factors and not only amid a weaker greenback. Key macroeconomic data on the labor market and inflation is positive, while the Reserve Bank of Australia took a more hawkish stance in March compared to previous meetings. At the beginning of the year, the Governor of the RBA, Philip Lowe said the rate hike was very unlikely this year. However, he admits that this scenario will be possible if inflation keeps rising higher.
All this suggests that the development of the uptrend mostly depends on the external fundamental background. The coronavirus factor may create temporary pressure but is unable to reverse the trend or slow it down significantly. At the same time, the geopolitical factor has a larger influence on the pair. In the short term, all attention will be focused on the next round of negotiations between Russia and Ukraine. The result of the talks will be announced tomorrow or the next day. In case of successful negotiations, the AUD/USD pair will be able to test the resistance level of 0.7560 and consolidate above this target. Otherwise, bears will get a chance to fight back. The level of 0.7460 will serve as support, or the downward correction target. This level corresponds to the middle band of the Bollinger Bands indicator, which coincides with the Kijun-sen line on the H4 chart.