Market Analysis – USDAUD
The Australian Dollar is showing some weak corrective gains during this morning’s Asian session, recovering from a strong decline at the end of last week and again trying to consolidate above the strong support at 0.7700. The strong bearish movement seen on Friday was mainly related to the US Dollar and was experienced across all major currency pairs. Looking at the wider picture the asset over the past one month of trading has shown no major long-term price movement, and has been forming quick weak price action followed by price rejections and corrections. For this reason, a lot of traders had opted for short-term trading, such as intraday, but the price movement did push the asset significantly lower resulting in traders evaluating any possible longer term downward movement over the next few days.
The US Dollar, which received a short-term boost to growth last Friday, remains under pressure mainly due to the soft position of the US Federal Reserve, which is in no hurry to share its longer term plans to reduce the current stimulus packages or alter interest rates. Investors are preparing for the next meeting of the American regulator, which will be held on June 16; however, this time the market is counting only on comments at a press conference. Traders are eager to hear any comments regarding the US inflation rate which has reached above 5%, double traditional inflation targets. In the past, the Chairman of the Federal Reserve had advised the inflation was only temporary and employment was still far behind targets, all this meaning a zero stance towards altering the monetary policy.
In addition, traders are waiting for Thursday, when the May report on the Australian labor market will be released including the Employment Change and the Unemployment Rate, as well as a speech by the Governor of the Reserve Bank of Australia (RBA), Philip Lowe. The speech is likely to hold as much importance as the employment figures released, the Governor, Mr Lowe, is due to deliver a speech titled, “From Recovery to Expansion” at the Australian Farm Institute Conference, in Queensland. All three events have been measured as high volatility announcements, meaning traders should expect possible fast price movements and possibly even larger trends develop throughout the day.
On Friday, Australian Prime Minister, Scott Morrison, stated that a free trade agreement between Australia and the UK will be signed immediately after the G7 summit, going in London. The countries were ready to cooperate immediately after the UK left the EU, but the coronavirus pandemic and other factors made adjustments. Economic statistics also supported the Australian Dollar in general. The expected inflation rate rose to 4.4% from 3.5%, which is a positive signal for the regulator, which considers accelerating inflation to be the main goal for starting to reduce financial stimulus. The overall inflation figure is currently 1.1%, which is much higher than the deflation witnessed at time last year, but again, is still far below the 2% target. Traders will be keen to see if the inflation rate continues to decline over the next months as it has in the US and Europe.
Resistance levels: 0.7725, 0.7750, 0.7774, 0.7800.
Support levels: 0.7700, 0.7676, 0.7645, 0.7600.