Discussion of the Australian dollar
AUD / USD creates a series of high highs and lows, extending the rebound from the annual low (0.6829), and fresh fingerprints of data coming from Australia may contribute to higher exchange rate growth as employment is expected to increase for six consecutive months.
The rebound AUD / USD takes shape ahead of the employment report in Australia
AUD/USD seems to have turned the course forward June 2020 minimum (0.6648) against the background of recovery in global benchmark stock indiceswith the exchange rate to a new weekly high (0.7041) as Minutes of the Reserve Bank of Australia (RBA) shows that “Timely data from communications surveys and business surveys showed that the cost of labor is rising in a tense labor market, and in the future is likely to further increase.”
As a result, the RBA insists that “that further interest rate hikes are likely to be needed to ensure that inflation in Australia eventually returns to target”, And the update of the employment report in Australia may cause a bullish reaction in AUD / USD, as the economy is expected to add 30.0 thousand jobs in April.
At the same time, there has been a narrowing of the unemployment rate to 3.9% from 4.0% over the same period, and continued improvement in the labor market may encourage the RBA to hold a series of rate hikes in the coming months, according to the central bank.there is no current experience as to how labor costs and prices in Australia will behave at an unemployment rate below 4 per cent.”
In turn, AUD / USD may organize a larger recovery before the next meeting of the RBA on June 7 as governor Philip Lowe and Co. are preparing Australian households and businesses for higher interest rates, and further exchange rate hikes could mitigate the gap in retail sentiment as behaviors observed earlier this year.
The IG Customer Sentiment Report shows 66.17% of traders currently net-long AUD / USD, with the ratio of traders long and short standing at 1.96 to 1.
The number of net-long traders is 6.18% less than yesterday, and 15.62% less than last week, while the number of net-short traders is 12.24% higher than yesterday, and 26 , 92% higher than last week. The decline in net long position occurs as AUD / USD grows fresh weekly high (0.7041)while the jump in interest in the net short pair helped ease the cramped behavior, as last week 74.02% of traders were in the pair.
That said, the next increase in employment in Australia could push the recent series of highs and lows in AUD / USD, as it fuels speculation for another RBA course hike but rebound from the annual minimum (0.6829) may prove to be a correction in a broader trend with Federal Reserve System on the way to the normalization of monetary policy at a faster pace.
Daily AUD / USD exchange rate chart
Source: Trade view
- Keep in mind AUD / USD pulled out Low level of July 2020 (0.6877) after overlapping the opening range for May, but the exchange rate seems to have changed course Low level of June 2020 (0.6648) as the recent rebound in price pulls Relative Strength Index (RSI) from the territory of oversold.
- AUD / USD knocks out a number of high highs and lows amid no momentum to break / close below Fibonacci overlap by about 0.6770 (38.2% expansion) to 0.6820 (50% rollback)with movement over 0.6940 (78.6% expansion) area bringing 0.7070 (61.8% expansion) to 0.7090 (78.6% rollback) region on the radar.
- The next area of interest comes around 0.7130 (61.8% rollback) to 0.7180 (61.8% rollback) then 0.7260 (38.2% extension) area, which is largely consistent with the 200-day SMA (0.7265).
— Written by David Song, currency strategist
Follow me on Twitter at @DavidJSong