The Australian dollar breaks records again: it has updated a 31-month price high in pair with the US currency. It is now approaching the limits of the level of 0.7800 and it is only a matter of time before it reaches this level. The general fundamental background for the AUD/USD pair contributes to the further growth of the Australian dollar, at least in the medium term.
In late December and early January, the pair's buyers tried to break through the level of 0.7700 several times, however, they returned every time, failing to settle in this price area. In view of this, China acted as a kind of pressure for the AUD/USD. There are rumors circulating in the market that the growing political tension between Beijing and Canberra could develop with a new force. This time, the lever of pressure from China will be Australia's strategically important raw material product – iron ore.
However, these rumors were unconfirmed. It became known yesterday that China has expressed its intention to increase iron ore production in Australia and West Africa. According to China's Ministry of Industry and Information Technology, Beijing plans to significantly increase the share of national enterprises in foreign iron ore mines by 2025. It should be recalled that China is the world's largest importer of iron ore, as almost 80% of the national demand for raw materials is covered by imports. In particular, they increased the volume of imports of yellow ore in the country last year, exceeding the mark of one billion tons in 12 months. Accordingly, Australia is the largest supplier of raw materials to China.
Amid difficult relations between Beijing and Canberra, as well as the recently imposed embargo on coal from Australia, the above statement by the Chinese Ministry of Industry caused a certain resonance, but in a positive way. In this case, the Australian dollar allowed itself not only to consolidate within the 77th mark, but also approach the next price highs, which is the 78th (0.7800) mark.
It should be noted that the US dollar index showed short-term growth during today's Asian session, reacting to the first results of the by-election to the US Senate. Based on the preliminary data, the Republicans are still in control of the Upper House of Congress. New York Times also reported that Republican candidate, Kelly Loeffler, won 51.1% of the vote, while Democrat Raphael Warnock received 48.9% of the vote. At the same time, Republican David Perdue is ahead of Democratic representative Jon Ossoff. According to other American press reports, Democrat Warnock wins, but in the other pair (Perdue-Ossoff), the victory is still on the Republican side.
On the one hand, this is unfortunate news for the Democrats: If they rule the Senate, they would get full power, and Joe Biden would be able to carry out reforms without looking back at the Republicans, who can block the legislative initiatives of their opponents. The US President has great powers in the field of foreign policy, but he needs the support of legislators for structural reforms in the country. Currently, the Democrats control the House of Representatives and the Republicans control the Senate, so Mr. Trump had to consider the interests of the Democratic Party in many issues, and accordingly, Mr. Biden would need to consider the interests of the Republican Party, since judging by the results of the by-elections to the Upper House of Congress, the balance of power will not change.
On the other hand, traders of dollar pairs took this news quite calmly, since the Democrats initially had little chance of winning. The state of Georgia, where by-elections were actually held, is historically considered the Republicans' patrimony – representatives of the Democratic Party have not won there for decades. And although the results of the presidential election allowed experts to classify this state as "wavering", the fate of the Senate seats was actually a foregone conclusion. Local residents remained true to the tradition by electing Republicans.
The dollar index reacted to this news with a small upward surge, rising from a local low of 89.403 to a local high of 89.602. However, the activity of dollar bulls disappeared: the index could not even surpass the key level (0.9000), thus showing the passivity and vulnerability of the US dollar. It was sold again during the second half of the Asian session. All this indicates the priority of long positions on the AUD/USD pair, as buyers have not yet worked out the potential of the upward trend.
Technically, the priority is also for the growth of AUD/USD and on all upper time frames, such as H4, D1, W1 and M1. So, the price is on the upper line of the Bollinger Bands indicator on all the listed timeframes, and the Ichimoku indicator has formed a bullish signal "Parade of Lines" (except for the monthly chart). The weekly chart shows the priority of an upward scenario: the pair broke through the upper line of the Bollinger Bands indicator, so the price is above the Kumo cloud.
The monthly chart, in turn, suggests that the price is on the upper line of the Bollinger Bands, but the subsequent growth in the Kumo cloud may be higher – up to the level of 0.7870 (upper limit of the above-mentioned cloud on M1). The first upside target is 0.7800. This target can act as a resistance level (i.e., a temporary corrective pullback is possible), so if we consider medium-term trading, it is advisable to go into purchases when breaking through the "round" level.