The AUD/USD is on track for the third consecutive weekly gains, helped by the ongoing dollar sell-off, higher commodity prices, and strong Australian data. The pair soared to the highest level since March 2018 and is up by more than 42% since March last year.
Australian dollar rally continues
The Australian dollar has been the best-performing currency since March last year, when the greenback sell-off accelerated. The currency has jumped by 42%, while the New Zealand dollar and British pound have risen by 33% and 22%, respectively.
This performance has been driven by the way Australia handled the coronavirus pandemic. A look at the data shows that the country had fewer infections than comparable countries like the United Kingdom, Italy, and Spain.
Also, the strength of the Chinese economy played a role in the rally. China surprised the market in the second quarter when the economy expanded by more than 3.2%. It became the first major country to emerge from the pandemic.
The China factor is important for the AUD/USD price for two reasons. First, China is Australia’s biggest trading partner. It buys most of its goods and services every year. Second, the resurgence of the Chinese economy has led to higher commodity prices like copper and iron ore. In fact, the Bloomberg Commodity Index (BCOM) has risen to the highest level in almost three years, as shown below.
Bloomberg commodity index
Data released on Friday showed that the Austrian economy is indeed recovering. According to Markit, the manufacturing PMI declined from 57.2 in January to 56.6 in February. The services PMI declined from 55.6 to 54.1.
While the two numbers declined, they are still above 50, which is a sign that manufacturers and service providers are increasing their output. On Thursday, data from Australia’s Bureau of Statistics (ABS) revealed that the unemployment rate dropped to 6.4% from 6.6% in January. The economy also added almost 30,000 jobs. Economists expect that this trend will continue in the near term as the country kicks-off mass vaccinations.
US dollar sell-off
The AUD/USD has also spiked because of the ongoing dollar sell-off. On Friday, the US dollar fell by 0.45% against the euro and by 0.20% against the British pound. It also fell by 0.50% against the Swedish krona and Canadian dollar, respectively. As a result, the dollar index fell by more than 0.40%. In total, the dollar index had crashed by about 12% from its highest level in March last year.
US dollar index
The ongoing sell-off is mostly because of the actions by the Federal Reserve and Congress. To deal with the pandemic, the Federal Reserve slashed interest rates and implemented a large-scale quantitative easing program. In its part, Congress has already passed a stimulus package worth more than $4 trillion.
It is currently in the process of passing another $1.9 trillion package. Combined, the overall stimulus in the US will be almost $10 trillion. As such, investors believe that these actions will lead to more inflation.
AUD/USD technical outlook
The AUD/USD price has been forming a cup and handle pattern in the past few weeks. It reached the highest point of the cup on February 16th. It has been forming the handle part in the past few days. And today, it managed to move above the upper side of the cup. The price remains above the moving averages while the Relative Strength Index (RSI) has continued rising. Therefore, the pair will likely continue soaring as investors target the next resistance at 0.800.