Traders of the AUD/USD pair ignored the Australian labor market data yesterday. The release was expected to be negative, although not without pleasant surprises. However, market participants ignored both the positive and negative sides of an important publication. The aussie is stuck in a narrow-range flat in the middle of the 64th figure, showing only rare price hitches this week. Traders are clearly in no hurry to open large positions against the background of a contradictory fundamental picture. And yet, in my opinion, the AUD/USD pair retains the potential for further growth, to the next resistance level of 0.6570 (the upper line of the Bollinger Bands indicator on the daily chart). Prioritizing the upward direction is evidenced by both fundamental and technical analysis.
But let’s go back to the labor market data. First of all, it should be noted that the figures already sufficiently reflect the consequences of the coronavirus crisis. The Australian authorities imposed a quarantine in late March and early April, gradually tightening restrictive measures. The previous release only covered the period up to mid-March, so it turned out to be quite good – unemployment marginally rose (to 5.2%), and the number of employed did not decrease, but even increased-by 0.7 thousand. Yesterday’s data, of course, was much worse. Although the unemployment rate here was a pleasant surprise – experts anticipated an increase to 8.5%, while it increased only to 6.2%. But the indicator of growth in the number of employed people was really disappointing: most analysts predicted a reduction in the indicator by a record 575,000, but it collapsed by almost 600,000. The structure of the indicator shows that full employment decreased by almost 230,000, partial employment – by more than 370,000. The share of the economically active population fell to 63%.
Commenting on published figures, Prime Minister Scott Morrison said that the Australians “should be ready to receive new bad news,” apparently referring to the next release. Indeed, the May data will cover part of April and almost full May, so it is unlikely that these figures will differ from yesterday for the better. And yet, despite such bearish information, the pair showed only a slight formal decline, then it returned back to the middle of the 64th figure.
In my opinion, the aussie is not focusing on current statistics, but on future prospects. Morrison also announced that the economy is now restarting and will recover quite quickly – unless, of course, the country faces the second wave of the epidemic. This position is consonant with the position of the Reserve Bank of Australia, whose economists predicted economic recovery in the second half of the year.
Let me remind you that on May 8, the Australian government announced the gradual removal of quarantine introduced due to the coronavirus epidemic – this is a week earlier than planned. At the same time, some states began to relax coronavirus restrictions even earlier. The government has announced a three-stage plan to ease quarantine measures – according to declared intentions, by July, nearly one million people should return to work. Schools, cafes and restaurants have already started working (still with some restrictions).
This fact supported the Australian currency, but subsequent reports that large Australian states refused to weaken quarantine quenched the upward momentum of AUD/USD. It became known that New South Wales and Victoria, where Sydney and Melbourne are located and which account for almost two thirds of coronavirus cases in the country, have decided so far to mitigate only those quarantine measures that relate to small and medium-sized businesses.
Nevertheless, representatives of these states this week announced that they would join the national quarantine exit plan if the positive trend in incidence rates continued. Therefore, the bears did not have time to take advantage of this information.
So now traders are waiting for new information that would help the bears or bulls of the pair break out of the flat. As you can see, negative fundamental factors are either ignored by the market or have a short-term effect. Even the general surge in anti-risk sentiment, which was due to the increased risk of the second wave of the coronavirus epidemic, did not affect the mood of the pair traders.
In my opinion, AUD/USD will soon follow the US currency, as the Australian dollar demonstrates complete passivity and apathy. This means that macroeconomic reports from the US will take the spotlight today – first of all, we are talking about the release of data on the volume of retail sales. According to the general forecast, the April indicator will update the anti-record – taking into account car sales, it will collapse by 11%, excluding – by almost 9%. If real numbers turn out to be worse than even such a pessimistic forecast, the pair could again try to approach the 65th figure, with the subsequent attempt to test it.
From a technical point of view, the AUD/USD pair was able to stay between the middle and upper lines of the Bollinger Bands indicator over the past four days, as well as above all the lines of the Ichimoku indicator, which continues to demonstrate a bullish Parade of Lines signal. This suggests that the pair maintains the growth potential to the intermediate resistance level of 0.6500 and the main growth target of 0.6570 (the upper line of the Bollinger Bands indicator on the daily chart).
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.