The Australian dollar, paired with the US dollar, began the trading week with a small downward gap: if trading closed at 0.6835 on Friday, they started at 0.6811 on Monday. However, within a few hours, buyers of AUD/USD were able to close the gap and even update the high, although the pair's growth is quite uncertain. The Australian currency recovered slightly due to the general weakening of the US dollar, as well as following the results of today's speech by the head of the RBA. But this will be discussed a little later, for now, I would like to recall the reasons for the inarticulate price fluctuations of AUD/USD, which were observed throughout the past week.
Traders are clearly discouraged by the contradictory fundamental background: on the one hand, AUD has received quite strong support from the Reserve Bank of Australia. At its last meeting, the regulator made it clear that it will maintain a wait-and-see attitude in the near future. Thus, the Central Bank leveled the circulating rumors that the rate could be reduced to the negative area. Macroeconomic reports also provide background support to the Australian currency, despite a general decline in key indicators. However, the key role here is played by the RBA's reaction to published reports. And the reaction is positive again: according to representatives of the Central Bank, the "coronavirus strike" turned out to be weaker relative to earlier forecasts - unemployment did not grow so much, while inflation indicators showed a relatively tolerable decline.
Moreover, even the latest labor market data in Australia could not "break" the indicated currency, although the figures were much worse than forecasted. Thus, the unemployment rate in May jumped to 7.1% (with a forecast of growth of up to 6.9%), which is a long-term anti-record: the last time the indicator was at such a high level was in 1999. The number of employees decreased by 229 thousand, while experts predicted a 100 thousandth reduction. But in fairness, it's worth saying that there is a positive trend, since the number of employees declined by a record 607 thousand in April. In other words, the trend here has acquired a positive character.
Despite such a "parade of anti-records," the Reserve Bank of Australia did not dramatize the situation. The RBA members focused on the earlier completion of the lockdown (the authorities began to gradually weaken the quarantine regime in early May), saying that the country's economy, apparently, will recover at a faster pace than previously expected. On this wave, the Aussie rose until it reached a key resistance level of 0.7000. This mark was besieged by buyers of AUD/USD for almost two weeks, but they were not able to enter the 70th figure. To conquer this target, you need a more powerful informational reason – just general optimism about the growth prospects of the Australian economy is not enough. Therefore, the Australian dollar initially stalled at the borders of the level of 0.7000, and then began to give up its positions, especially against the background of the general strengthening of the US currency.
It is also worth considering that the political conflict between China and Australia was not only not resolved, but also worsened. Let me remind you that the Australian authorities at the height of the pandemic became one of the initiators of the anti-Chinese campaign – Canberra called for an independent investigation of the causes of the spread of coronavirus. This proposal was supported by more than 120 countries, but at the same time, it was received "with hostility" by the Chinese side. Beijing accused Australia of "attacking China", after which the political conflict passed into the economic plane. In particular, China increased duties on certain types of Australian goods, while refusing to import beef.
The Australian Foreign Ministry tried to organize a negotiation table with Beijing, but the Chinese ignored such requests. Later, the conflict worsened. On Friday, it became known that the servers of several government departments in Australia became the target of a hacker attack. The Australian prime minister commented on this event, saying that the scale and sophistication of the intervention indicate that "not individual attackers, but a foreign state" are behind the attack. Although he did not express specific suspicions, the Australian press clearly attributed this cyber attack to China.
All this suggests that tension between countries persists, and this fact manifests itself in various spheres of life. For example, representatives of China called on Chinese students not to return to Australian universities "because of racist incidents." Australia's Commerce Secretary responded bluntly that his country's economy would suffer if Chinese students followed Beijing's recommendations. An analysis by scientists from the University of Melbourne showed that at least 7 Australian universities are currently at "high financial risk" and may face a crisis due to a decrease in the number of international students.
Such a fundamental background does not contribute to the stable growth of the AUD/USD pair, while for the continuation of the upward trend, buyers need to break through the level of 0.7000. Today's speech by the head of the RBA, Philip Lowe, provided little support to the Australian currency, but his rhetoric will not help the bulls break through the "ceiling" of the 70th figure. In general, the head of the Australian regulator repeated the rhetoric already voiced earlier, the essence of which is that the recession in the Australian economy was not as serious as expected. But at the same time, Lowe talked about "dovish" remarks, saying that interest rates are likely to remain at current levels for several more years. In addition, he also complained about the high rate of the Australian dollar, noting that "I would like to achieve its decline."
Thus, the current fundamental picture allows the AUD/USD pair to rise to the high of last week, namely to the level of 0.6978. From current positions, you can consider buying a pair, but when approaching the 70th figure, it is better to close the longs, since before the resolution of the Australian-Chinese conflict, buyers are unlikely to be able to consolidate in this price area.
