This week, on Monday, the Australian dollar hit a new multi-month high of 0.7541 against the US dollar. The last time the pair was at that high was in July last year. However, despite the uptrend observed for several weeks, the pair could break through the support of 0.7550, which corresponds to the upper line of the Bollinger Bands indicator on the daily chart. AUD has been trying to reach this level for a long time, but all attempts were in vain. As the pair approached this level, sellers returned it back. As a result, the pair has stuck within the range of 0.7450-0.7540.
Today's bearish momentum was due to a sharp strengthening of the US dollar in the market. The US dollar index jumped to 98.28 from 97.76 in just a few hours, reflecting increased demand for the greenback. Notably, there were no obvious and specific reasons for such strengthening. Apparently, the US dollar bulls took advantage of the lack of economic data releases, which occurred after the Istanbul meeting between Russia and Ukraine. Despite the declared progress in negotiations, there is still a long way to go until a final agreement is reached and both sides acknowledge this. Therefore, the first optimistic sentiment gradually subsided and was replaced by a cautious stance, which allowed the safe-haven dollar to strengthen.
In addition, yesterday the market almost disregarded the release of data from the US agency ADP. According to the report published yesterday, almost 500,000 jobs were created in the private sector in March - 455,000. This is quite a strong result, which indicates a strengthening of the US labor market. This release is considered a "precursor" to the official numbers - Nonfarm payrolls will be released tomorrow. According to preliminary projections, the US unemployment rate should fall to 3.7% in March and nonfarm payrolls should rise by 488,000. The US dollar bulls should be happy with income data as well. The average hourly wage should rise to 5.5% year-over-year. It's likely that the greenback today is recouping yesterday's ADP report ahead of tomorrow's official release.
The Chinese data also added fuel to the fire. The data released today reflected a slowdown in China's manufacturing and non-manufacturing sectors. The world's largest economy is slowing down again, showing a possible slowdown in global economic growth. Thus, the PMI for the manufacturing sector rose in March to only 49.5 points. The index fell short of the forecasted value estimated at 50.1 and crossed the "red line" for the first time since last October. As you know, a result above 50 indicates the expansion of the manufacturing sector, and below 50 - its contraction. China's Non-Manufacturing Activity Index also crossed that line, coming in at 48 points. This is the weakest result since last August.
The abovementioned fundamental factors helped bears to retreat to the upper boundary of the range 0.7450-0.7540. However, the sellers could not pierce the lower boundary of this range, meeting the resistance of buyers. AUD is supported by the growth of key Australian macroeconomic indicators, the hawkish stance of the RBA because the regulator does not rule out a rate hike in the current year, and optimism that the geopolitical situation is stabilizing. All these factors are preventing the AUD/USD pair from falling to 0.7400.
As a result, AUD is trading sideways. Although the range is wide enough - almost 100 points - traders are forced to trade within this range, not daring to make a large-scale rally.
Technically, the pair retains the potential for further growth. I believe that if it were not for geopolitical factors, AUD would be trading in the area of 0,7600. However, we should be guided by objective realities. On the daily chart, the pair is trading between the middle and the upper lines of the Bollinger Bands indicator, as well as above all the lines of the Ichimoku indicator, including the Kumo cloud. This indicates the priority of the uptrend. At the same time, fundamental factors do not allow the buyers to reach above the resistance level of 0.7540, corresponding to the upper line of the Bollinger Bands indicator. Most likely, in the medium term, the pair will fluctuate between the Tenkan-sen line at 0.7450 and the upper line of the Bollinger Bands on the daily chart. Therefore, when approaching the upper boundary of the range, it is better to consider the opening of short positions and long positions if the pair approaches the lower boundary.