FX.co ★ AUD/USD. Aussie's fleeting success: the downward direction is still in force

The Australian dollar is now confidently losing its positions after a rapid rise to the middle of the 65th figure. On Monday, the aussie hit a new 2.5-month price high, but failed to settle above the upper line of the Bollinger Bands indicator on the daily chart, which corresponds to 0.6550.

In general, AUD/USD bulls owe their fleeting success solely to the US currency. The temporary weakening of the greenback allowed the bulls to seize the initiative and develop a corrective 250-point growth. But the current situation has a reverse side of the coin: as soon as the dollar "came to its senses", the aussie was forced to follow it. The aussie does not have its own arguments for a counteroffensive, so going long on the pair looks a priori more risky than selling.

For all its problems, the US currency has its "constant" advantages over the aussie, which are primarily expressed in the uncorrelation of the Federal Reserve and Reserve Bank of Australia rates. While the RBA slowed down the pace of monetary policy tightening back in September, the Fed is still hesitating on this issue. Moreover, the US central bank, following the results of the last meeting, announced that the current rate hike cycle will end at more distant positions relative to previous forecasts. In layman's terms, this means that the Fed will step over the 5% mark, raising the rate to at least 5.25%. Therefore, the very fact of slowing down the rate of increase in this case plays a secondary role, especially in the context of the AUD/USD pair.

Let me remind you that after a series of 50-point hikes, the Australian central bank slowed down, and at the two previous meetings (in September and November) it raised the rate in 25-point increments. RBA Governor Philip Lowe said that the central bank's board "considered it appropriate to raise rates at a slower pace." Moreover, commenting on the results of the November meeting, he noted that the members of the central bank discussed, among other things, the consequences of refusing to raise rates. Thus, he allowed a pause in the process of tightening monetary policy. And although it is too early to talk about this at the moment, the results of the last RBA meeting disappointed AUD/USD bulls. The aussie dropped sharply, reaching 0.6275. And if the US currency had not weakened throughout the market, the pair would have systematically plunged to the area of the 60th figure.

The fundamental picture of the AUD/USD pair is now distorted by political factors. The midterm elections to the US Congress, following which the Republicans are definitely winning the lower house from the Democrats (the fight for the Senate is still ongoing), put pressure on the greenback. But, as a rule, political factors flare up brightly, but fade quickly. Therefore, longs for the AUD/USD pair should not be trusted: in the very near future, the market will switch to "classic" fundamental factors, especially considering Wednesday's release.

Let me remind you that key data on the growth of inflation in the United States will be published on Thursday. According to preliminary forecasts, the general consumer price index in October increased by 8.0% (y/y), and the core index – by 6.5% (y/y). Even if all components come out at the predicted level, the dollar may significantly strengthen its position, as the growth of inflation will demonstrate an extremely weak rate of slowdown. If the inflation report turns out to be in the green zone, we may witness another dollar rally, including for the AUD/USD pair.

However, some other fundamental factors also play in favor of the bearish scenario. For example, the latest news from China does not contribute to the development of the upward movement. This week it became known that China's trade surplus increased to $85.15 billion (from $84.74 billion), while market expectations were at $95 billion. Also, China denied rumors that the authorities may weaken the strictest measures to counter the spread of coronavirus. According to representatives of the National Health Commission of the People's Republic of China, Beijing's "zero tolerance" approach to the coronavirus remains the main strategy for combating COVID-19. Australia is China's largest trading partner, so this information plays against the aussie.

From a technical perspective, AUD/USD bulls could not overcome the upper line of the Bollinger Bands indicator on the daily chart, which corresponds to the 0.6550 mark. At the same time, the price is located under the Kumo cloud on the D1 timeframe. The pair will still retain the potential to decline, at least to the 0.6360 mark: at this price point, the average line of the Bollinger Bands indicator coincides with the Kijun-sen line. This is an intermediate support level, while the main price barrier is still the 0.6200 mark - this is the lower line of the Bollinger Bands indicator on the same timeframe.