Yesterday, the AUD/USD pair approached the support level of 0.7220, which corresponds to the lower line of the Bollinger Bands indicator on the daily timeframe. Despite the impulse price decline, the bears of this instrument did not dare to break through the level of 0.71. The US dollar slightly weakened throughout the market during the American trading session, which resulted in a correction of the pair, remaining within the 72nd mark. The minutes of the RBA's last meeting, published today, also contributed to a slight growth of the Australian dollar, albeit the dovish content. However, traders interpreted it in their own way, after which the AUD/USD pair rose to the level of 0.7278.
In general, the pair is showing a downward trend, which is clearly seen on the daily and weekly timeframe: the Australian dollar has been losing its positions for the third week in a row.
The main driver for the downward trend is the US dollar, whose price is rising ahead of the Fed's September meeting. However, the Australian dollar is also burdened with a number of problems that put pressure on the pair and pull it to local price lows. The dovish mood of the RBA, the worsening epidemiological situation, the decline in the cost of iron ore, the problems of the developer Evergrande – all these fundamental factors exert background pressure on the pair, determining the downward course.
The publication of the minutes of the RBA's September meeting today unexpectedly supported the Australian dollar. This support is very modest, but the fact of the currency's growth amid a very pessimistic conclusions of the Central Bank is surprising. It can be recalled that before the last meeting of the Australian Central Bank, some experts assumed that the regulator would abandon the planned reduction of the bond purchase program to $ 4 billion per week (from the previous value of $ 5 billion). But this did not happen: the RBA supported its intentions, thereby provoking a short-term growth of the pair to a local price high. The minutes of this meeting released today showed that the regulator did discuss the possibility of a delay, but decided to "move on" in the end, despite the existing risks. Apparently, it was this fact that inspired the AUD/USD bulls to another corrective wave. After all, all the other theses of the document are negative for the Australian currency.
In particular, the Reserve Bank has postponed the deadline for the next round of revision of the bond repurchase program. If earlier, the Central Bank planned to discuss this issue in November, then now, it has postponed this moment to February 2022, reacting to the weakening of economic indicators. Experts believe that if the labor market does not cope with the coronavirus strike in the coming months, the February "deadline" will be moved again to a later date. As for the fate of the interest rate, RBA Governor, Philip Lowe, is expected to start tightening the parameters of monetary policy "not earlier than 2024".
However, it is not only the RBA that is exerting background pressure on the AUD – the commodity market is also contributing. Here, the cost of iron ore (a key raw material product for the Australian economy) continues to decline actively. If in the spring a ton of iron ore cost about $ 200-230, this week its value fell below $ 100. This raw material is becoming cheaper, mainly due to the large-scale restrictions imposed by China on steel production as part of the country's policy to reduce harmful emissions. Australia is the world's largest producer of iron ore, so it is obvious that the largest export item of the country's budget is at risk of falling.
This problem is also similar to another one related to the Chinese developer Evergrande Group. The debt burden of this company is the largest among all public companies in the field of real estate management and development. According to some experts, the Chinese authorities will allow the collapse of Evergrande, which will hit its shareholders and bondholders. Such shocks are fraught with a slowdown in activity in the Chinese construction sector. The company's default may also affect China's financial system as a whole. Evergrande owes 171 Chinese banks and 121 financial companies-its default could lead to a significant reduction in lending in the country. According to other analysts, Beijing will still intervene in the situation to save the developer. Uncertainty remains, and on the one hand, this supports the US dollar as a protective asset, but on the other hand, it exerts background pressure on the Australian dollar.
Australia's epidemiological situation also leaves much to be desired. The daily increase of COVID-19 cases remains in the range of 1700-2000 (for comparison, 10-20 cases per day were registered at the beginning of summer), which is why the authorities continue to extend quarantine restrictions. In total, more than 85 thousand cases of coronavirus have been recorded in the country since the beginning of the pandemic, and two-thirds of them occurred this year mainly after June. The more infectious strain "delta" spreads faster and is more difficult to stop. Lockdowns are planned to be canceled only when 70% of the population is vaccinated (at the moment about 55%) and approximately, this will happen no earlier than November.
Therefore, there are currently all the prerequisites for the continuation of the downward trend of AUD/USD. The same is said by the technical picture: the pair on D1 is located between the middle and lower lines of the Bollinger Bands indicator, as well as below all the lines of the Ichimoku indicator, which shows a bearish "Parade Line" signal. The first target of the decline is the level of 0.7220 (the lower line of the Bollinger Bands on the daily chart). The main target in the medium term is 100 points lower, at 0.7120 (also the lower line of the Bollinger Bands, only on the weekly timeframe).