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FX.co ★ AUD/USD: Australia's election results and the temporary weakening of the greenback

AUD/USD: Australia's election results and the temporary weakening of the greenback

The Australian dollar reacted positively to the results of the parliamentary elections that took place last weekend. Aussie strengthened its position against the background of a general weakening of the greenback, which is declining throughout the market at the start of the trading week. This combination of factors allowed AUD/USD buyers to test the 71st figure. The price crossed the 0.7100 mark for the first time in the last two weeks. However, it is too early to talk about a trend reversal—the prevailing fundamental background is too contradictory.

Therefore, there is no need to hurry with longs: according to most experts, the corrective decline of the US dollar index will end in the near future, when the 101st figure is reached. While the Aussie is still unable to play its game—trading in the wake of the US currency. In other words, as soon as the greenback completes the correction, the Aussie will not be able to oppose itself to dollar bulls: the downward trend will be in force again.

AUD/USD: Australia's election results and the temporary weakening of the greenback

The events of the past week are truly significant: following the results of the parliamentary elections, power has changed in Australia. The ruling coalition lost to the Labor Party, which has been in opposition since 2013. Labor leader Anthony Albanese became the country's new prime minister, succeeding Scott Morrison.

According to preliminary data, the Labor Party won 72 seats in parliament, although the parliamentary majority assumes 76 mandates. And yet, Albanese was able to form a government—yesterday's opposition was supported by greens and independent candidates. Key members of the renewed government (Minister of Foreign Affairs, Minister of Finance, Chief Treasurer, Deputy Prime Minister) took the oath today. By the end of May, the rest of the newly elected composition of the Cabinet Ministers will be sworn in.

Some observers say that the policy of the new Australian government will not undergo fundamental changes, especially in the field of foreign policy. In particular, Albanese, already in his position as head of government, managed to declare that relations between Australia and China "will remain difficult."

As for domestic political issues, the new prime minister promised to focus primarily on two aspects: the fight against climate change and the fight against inflation. Albanese also promised to hold a referendum on the issue of granting indigenous people an institutional voice in the development of national policies. Traders seem to have seized on his programmatic stance in the context of dealing with high inflation in Australia. During his campaign speeches, Albanese campaigned, among other things, for raising the minimum wage to keep up with inflation and the rising cost of living. He also criticized the RBA, which, in his opinion, acts belatedly and indecisively.

But in general, in my opinion, the Australian dollar reacted positively precisely to the quick and trouble-free transit of power.

Buyers of the AUD/USD pair are trying not only to gain a foothold in the area of the 71st figure, but also to overcome the nearest resistance level of 0.7150 (Kijun-sen line on the D1 timeframe). It is likely that against the backdrop of a general weakening of the greenback, they will be able to fulfill this "minimum program." The question is, will buyers be able to hold this high when the US dollar completes its correction? After all, at the moment there are no systemic reasons for a large-scale weakening of the greenback. The Fed is hawkish, declaring its willingness to raise interest rates by 50 basis points in June, July, and possibly September. All Fed representatives who have spoken over the past two weeks have unequivocally supported this scenario.

The Reserve Bank of Australia, of course, will also tighten monetary policy for the foreseeable future, but the pace of rate hikes will be much more modest. There are a number of signs that the RBA will not keep pace with the Fed. For example, according to preliminary estimates, consumer spending in Australia is gradually but steadily declining due to falling real wages. In addition, the real estate market is also cooling down. Plus, the slowdown in the Chinese economy, which has suffered due to another outbreak of coronavirus and a wave of lockdowns. Despite difficult political relations, China remains one of Australia's largest trading partners, so the latest trends in the former will negatively affect economic growth in the latter.

AUD/USD: Australia's election results and the temporary weakening of the greenback

In addition, the US currency may soon receive support due to increased geopolitical tensions. Taiwan is back in the spotlight. Just today, Joe Biden said that the United States is ready for direct military intervention in the event of China's aggression against Taiwan. Beijing sharply criticized the words of the head of the White House, pointing out that the Taiwan issue is an internal affair of the PRC.

Thus, the AUD/USD corrective growth looks rather fragile, although the buyers have a certain margin, at least up to the level of 0.7150. But in the medium term, the AUD/USD bulls are unlikely to be able to hold their positions or develop a further, larger price increase. Therefore, when the upward impulse is fading, it is advisable to consider short positions with the first (and so far the main) target of 0.7040—the middle line of the Bollinger Bands indicator on the daily chart.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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