The Reserve Bank of Australia published a quarterly report on monetary policy - in this document, central bank economists analyze in detail the current economic conditions and provide forecasts for both the Australian and global economies. Given the recent events, traders did not expect to see any optimistic notes in this report. The regulator was extremely pessimistic about the current situation and immediate prospects, having announced the first recession in 30 years. Nevertheless, today's release was able to support the Australian currency.
To the surprise of traders, the RBA's rhetoric was, so to speak, "black and white" in nature - the essence of the spring report boils down to the fact that following the black bar for Australia will come white and the country's economy will recover quite quickly. In other words, today's release resembled a rhetorical question - "is the glass half full or empty"? Traders could focus on assessments of the current situation and immediate prospects, on the anti-records of the Australian economy. But instead, they seized on encouraging theses that relate to more distant prospects, namely the second half of this year. According to the Australian regulator, the country's economy will decline by eight percent by the end of June, and then will recover at an accelerated pace. The RBA report said that "the initial stages of this restoration may begin quite soon, as the authorities are gradually weakening restrictive quarantine measures. But it will take extra time to fully recover."
In other words, according to central bank economists, almost all key indicators will fall until June - first of all, labor market indicators that will draw salaries, consumer activity, and ultimately inflation. In general, the report published today largely repeated the theses that were voiced following the results of the May meeting of the RBA. The text of the accompanying statement was also full of pessimistic forecasts - in particular, the central bank predicted an increase in unemployment to 10 percent, a significant decrease in production in the first half of this year and a significant slowdown in inflation. According to RBA estimates, inflation will be below the target two percent level over the course of "several years".
Nevertheless, the Australian dollar remains optimistic - the aussie showed positive dynamics after the announcement of the results of the May meeting, and now, after the release of the RBA quarterly report. The AUD/USD pair has consolidated in the 65th figure and is now precipitating the nearest resistance level of 0.6560 (the upper line of the BB indicator on the daily chart). As you can see, traders actually ignore negative medium-term forecasts, focusing on other nuances.
For example, the aussie strengthened at the beginning of this week due to the fact that the Reserve Bank of Australia announced the preservation of a wait-and-see position and announced a reduction in the volume and frequency of bond purchases. Although the RBA emphasized that the interest rate will not be raised until the key inflation indicators and the level of employment reach their target levels. But this fact did not prevent the bulls from moving up.
Traders appreciated today's release only in terms of longer-term prospects. Also, do not forget that the data on Australian inflation growth published at the beginning of last week came out in the green zone, surprising the market participants. In annual terms, the general consumer price index crossed the 2 percent mark and reached 2.2%. In quarterly terms, the indicator decreased, but again, it turned out to be better than expected (decline to 0.3% with a forecast of 0.1%). Moreover, core inflation showed a positive trend, rising both in monthly and annual terms. In addition, the latest Australian labor market data also came out better than expected - instead of rising unemployment to 5.4%, the rate rose to 5.2%; instead of a decline in the number of employees to -30 thousand, the indicator has grown to almost 6 thousand (though these figures reflect only the first two weeks of March, while strict quarantine was introduced in the country in the second half of the month before last).
Thus, AUD/USD buyers still hope that key macroeconomic indicators will show a less deep recession relative to RBA forecasts and the country's economy will recover at a faster pace. The latest releases so far are on the side of the bulls.
The prime minister also provided additional support to the Australian currency. Today, Scott Morrison announced that Australia will remove most of the epidemiological restrictions "in the coming months." They plan to remove quarantine barriers in three stages - and above all, the authorities will focus on restoring jobs. In addition, the government is already removing some social restrictions: Australians will again be able to visit the pools, go to small cafes and restaurants and arrange holidays for a small number of guests.
To summarize, we can conclude that the pair retains the potential for further growth. Trading decisions should be made after the publication of American Nonfarms - this is a rather important release, which can either strengthen or weaken the position of the greenback. But in general, the pair's priority is behind long positions. The first target of the upward movement is the price of 0.6560 (the upper line of the BB indicator). A more ambitious goal is slightly higher - this is the "round" mark of 0.6600. If Nonfarms does not provoke a dollar rally, the pair may test the indicated price barrier next week.
The material has been provided by InstaForex Company - www.instaforex.com