According to the results of the past week, the Australian dollar paired with the US currency could not get out of the 100-point price range, within which it has been trading since July 16. The aussie has firmly established itself in the area of the 73rd figure, demonstrating, by and large,a wide-range flat. As soon as the pair overcomes the 0.7400 mark, it attracts bears who return the price to its previous positions. And vice versa - as soon as the pair approaches the bottom of the 73rd figure (with a hint of further decline), bulls are active, preventing the development of the downward scenario. This situation has been observed over the past two weeks. At the same time, the economic calendar for the pair was very busy – the July meeting of the US central bank, Federal Reserve Chairman Jerome Powell's speech to Congress, comments from representatives of the Reserve Bank of Australia (RBA), releases of the most important macroeconomic reports. But none of the listed fundamental factors moved the aussie from the designated price level.
The future prospects of AU USD depend on three interrelated factors: the behavior of the US currency, the position of the RBA and the epidemiological situation in Australia. To date, all these factors are playing against the aussie, as a result of which the pair could not stay above the 0.7400 mark by the end of the week, and so it ended the trading five-day period at 0.7345. The situation may worsen for the aussie next week, as the RBA will announce the results of its next meeting on Tuesday.
It should be noted here that for almost the entire month of July, the aussie actually moved after the greenback – the Australian currency did not have its own ambitions. Traders of the pair even ignored a very good inflation release, which was published in Australia on July 28. Despite the strong growth in the consumer price index, the Australian dollar remained "led", focusing only on the behavior of the US currency, which, in turn, reacted to the results of the July Fed meeting and macroeconomic reports (in particular, on US GDP growth in the second quarter).
This aussie's "lack of character" is quite understandable: given the recent coronavirus events in Australia, traders ignore macroeconomic reports, as RBA members can ignore them. The past "achievements" of the Australian economy are offset by new quarantine restrictions that were introduced in the country in early July. Let me remind you that after the Australians actually defeated the pandemic at the beginning of the year, the so-called "zero infection" policy was in effect in the country, under which the states sent citizens to strict quarantine even in the case of an increase with scanty indicators (3-10 cases per multimillion region). Despite such strict measures, in the middle of summer, the epidemiological situation began to deteriorate rapidly – the daily increase in cases exceeded at first the mark of 100 people, and then 200 people. For example, on July 29, 252 cases of infection were registered. For comparison, it can be noted that a month ago – on June 29-only 25 cases of COVID infection were detected. In 90% of new cases, we are talking about a new strain of "delta", which is more contagious.
The authorities of the largest Australian states reacted to the situation instantly, "closing", in fact, half of the country's population to isolation. The most severe quarantine restrictions have been introduced in the states of Victoria, New South Wales and South Australia. Moreover, the authorities of the largest city in Australia - Sydney -the day before yesterday tightened the lockdown conditions. Since July 29, the strict quarantine regime, which has been lasting for five consecutive weeks, prescribes citizens not to leave their homes for more than 10 kilometers and go outside "only if necessary".
According to preliminary estimates of the country's treasurer, a new wave of lockdowns costs the Australian economy $300 million a day. There is also no doubt that quarantine restrictions will affect the pace of recovery of the national economy. First of all, the labor market, which has just reached pre-crisis values, will be hit by the coronavirus crisis.
Let me remind you that at the July meeting, the RBA announced the launch of the third round of QE, which will begin in September (that is, when the current round of the program ends). At the same time, the central bank has reduced the size of the incentive program compared to the previous two rounds. The next round of purchases will last at least until mid-November – at a weekly rate of 4 billion Australian dollars, instead of the current 5 billion. At the same time, the Australian central bank indicated that "in light of the high level of uncertainty regarding the prospects for the economy," in the future, the RBA will adhere to a flexible approach to increasing or reducing the size of weekly bond purchases.
Taking into account the recent coronavirus events, it can be assumed that the RBA will voice exclusively dovish rhetoric at the August meeting, allowing for a softening of the parameters of monetary policy. Such prospects can put the strongest pressure on the Australian dollar.
All this suggests that short positions on the AUD/USD pair are still a priority. The first target of the downward movement is the 0.7300 mark – this is the lower line of the Bollinger Bands indicator on the daily chart. If this target is overcome, it will be possible to talk about reaching the next support level of 0.7220 in the medium term, which corresponds to the lower border of the Kumo cloud, which coincides with the average line of the Bollinger Bands on the monthly timeframe.
