FX.co ★ AUD/USD. RBA's "patient" protocol and falling iron ore prices: Aussie is under pressure

The Australian dollar paired with the US currency today tried to develop a corrective growth, against the background of a decrease in anti-risk sentiment in the market and a general weakening of the greenback. However, the minutes of the Reserve Bank of Australia's February meeting published today did not support the Aussie. The rhetoric of the members of the regulator was quite optimistic, but not "hawkish". In general, the AUD/USD pair has been showing gradual and smooth growth for the third week in a row, but at the same time, it is impossible to talk about a reversal of the southern trend - deep southern pullbacks and the inability to gain a foothold within the 72nd figure indicate the weakness of the AUD/USD bulls. In addition, iron ore also exerts additional pressure on the Aussie, which, after several weeks of upward dynamics, began to fall in price again.

But let's start with the RBA protocol. Let me remind you that the February meeting of the members of the Australian regulator took place after the release of data on inflation growth in the country. The figures for the 4th quarter of last year exceeded all expectations: in particular, the overall consumer price index jumped to 1.3% quarterly (while inflation rose to 0.8% in the third quarter). Against the background of such trends, the Reserve Bank decided to end its bond purchase program in the amount of 350 billion Australian dollars ahead of schedule. Initially, the regulator planned to curtail QE in May this year, but recent releases forced the Central Bank to significantly accelerate this process.

The minutes of the February meeting indicate that: "The forecasts of the RBA regarding the growth of core inflation in the past year have not been significantly justified. Taking into account recent trends, the achievement of target levels for the first time in several years is within reach."

However, this is the end of all the "hawkishness" of the RBA. The regulator ended QE ahead of schedule, but at the same time made it clear that it was in no hurry to raise the interest rate. The word "patience" is quite common in the text of the protocol, and this fact suggests that the Central Bank is not ready to start tightening the parameters of monetary policy in the foreseeable future. In particular, the document says that the Reserve Bank is ready to be patient, "as wage growth continues to lag, even though inflation is gaining momentum." In addition, RBA members doubt that inflation has settled steadily within the target range.

The head of the Reserve Bank, Philip Lowe, repeatedly spoke about all this - both before and after the February meeting. In particular, at his press conference, he said that the very fact of the early curtailment of the incentive program "does not signal an imminent increase in the interest rate," which remains at a record low of 0.1%.

Against this background, the "hawkish" expectations of some experts look, to put it mildly, not entirely realistic. For example, analysts at Commonwealth Bank of Australia said yesterday that Australian inflation in the first quarter of this year "will be much stronger than the forecasts of the RBA," and allegedly this factor will push the Central Bank to raise rates in June. I would like to disagree with this opinion, since the regulator focuses its attention not only on the growth of the CPI but also on the growth of wages, while this indicator is noticeably "stalling".

There is another pressure factor - the raw materials market. After weeks of growth, the cost of iron ore began to decline again: since February 10, prices have fallen by more than 10%. This happened after the Chinese authorities announced a campaign to curb the growth of the cost of raw materials. As you know, iron ore is a strategically important raw material for Australia, so a decrease in its value will negatively affect the Aussie.

The US dollar, in turn, demonstrates temporary weakness against the background of recent statements by some representatives of the Fed. Mary Daly, Esther George, and Thomas Barkin supported the idea of raising the interest rate in March, but at the same time did not support the idea of a one-time 50-point increase (this proposal is actively lobbied by the head of the St. Louis Fed, James Bullard). While the markets are putting quite aggressive rates of monetary policy tightening into prices.

However, this fundamental factor will not allow AUD/USD buyers to develop a long-term upward movement. Especially against the background of a rather soft position of the RBA, which is ready to "show patience". Therefore, the current growth of the pair is only a correction that can be used to enter sales.

Thus, the prevailing fundamental background indicates the priority of short positions on the AUD/USD pair. From the technical point of view, the price is on the middle line of the Bollinger Bands indicator (on the D1 timeframe), but under all the lines of the Ichimoku indicator. It is important for AUD/USD bears to gain a foothold below the average line of Bollinger Bands (that is, below 0.7130). In this case, they will be able to retest the support level of 0.7080, and in the medium term - the key support level of 0.7010 (the lower line of Bollinger Bands on the same timeframe).