The Australian dollar paired with its US counterpart is updating multi-month lows, despite strong labor market data, which was published last week. The coronavirus has undermined the positions of the Australian dollar: the AUD/USD pair declined to the 0.73 mark today for the first time since November last year, confirming the strength of the downward trend. The downward impulse is also due to the strength of the US dollar: the US dollar index is holding near the borders of the 93rd figure, reflecting increased demand from investors. The publication of the US retail sales data last Friday strengthened again the "hawkish" expectations about the prospects for the Fed's monetary policy. Due to this factor, the US dollar held back the blow inflicted by the Fed Chairman, Jerome Powell, who voiced pessimistic rhetoric in Congress.
On another note, all components of the Australian Nonfarm data came out in the "green zone", which is better than the forecasted values – the June figures reflected the recovery of the Australian labor market. In particular, the unemployment rate in the country plunged to 4.9%, although it should have remained at 5.1% based on the preliminary forecasts. This indicator shows a downward trend for eight consecutive months, indicating "healthy trends" in the labor market. The last time unemployment was at this level was in March 2019, when Australia felt the first negative consequences of the coronavirus crisis. After that, this indicator fluctuated in the range of 5.0% -5.4% for many months up to the coronavirus strike.
In other words, unemployment has returned to pre-crisis levels and is noticeably ahead of schedule. It is also worth noting the positive dynamics of the increase in the number of employees in June. The overall indicator also turned out to be better than forecasts, reaching 29,000 against the forecasted growth of 19,000. However, there is another highlight. The structure of this indicator suggests that the overall growth was due to full employment, while part-time employment showed a negative trend (the ratio is +51/-22). At the same time, it is known that full-time positions, as a rule, offer a higher level of salary and a higher level of social security, compared with temporary part-time jobs. Therefore, the current dynamics, in this case, is extremely positive. Thus, the Australian labor market has shown its "positive qualities" once again.
However, traders actually ignored this release. Since last Thursday, the AUD/USD pair has been plummeting, updating more and more new lows. The reason is the coronavirus. It can be recalled that Australia actually won against the indicated virus at the beginning of this year – for several months, isolated cases of infection were registered, most of them from those citizens of the country who returned from abroad (the border is closed for foreigners). But the so-called "Indian" strain ("delta"), which is more contagious and dangerous, has made its own adjustments. In recent days, dozens of cases of this type of coronavirus have been recorded only in the state of Victoria. Therefore, the country's authorities have responded with harsh measures: almost half of the 25 million population of Australia is isolated in their homes today.
For example, a 5-week quarantine was announced in Sydney, the largest city in the country. The state authorities reported 98 new cases of infection (a day earlier there were 105 cases) yesterday. Moreover, the state of New South Wales, of which Sydney is the capital, has already extended its isolation measures twice. The restrictions here were tightened again over the weekend – the regional governor additionally banned about 600 thousand people in the suburbs from leaving their districts and going to work. Minor shops, construction sites, cinemas, restaurants, hairdressers also remain closed.
Another lockdown also began in the Australian state of Victoria and its capital Melbourne (with a population of 5 million people) last Thursday. This is already the fifth in this region. Residents of the state can leave the house only for exercise near the house, necessary purchases, medical care, caring for loved ones, work or education, as well as to get vaccinated.
It should be noted that the vaccination campaign in the country is extremely weak. According to local media, Australia's immunization program is being implemented very, very slowly due to delays in the supply of vaccines and other organizational problems. Thus, only 2.3 million people are fully vaccinated – this is a little more than 10% of the adult population. For comparison, almost 88% of the adult population of the country received the first vaccination in the UK, and 68% received both doses of the vaccine. The population of Britain is 65 million people, while Australia has 25 million.
Such a gloomy news flow increased the pressure on the Australian dollar. Traders are justifiably concerned that a new wave of knockdowns will negatively affect the labor market and inflation indicators, which will affect the mood of the Reserve Bank of Australia members. And if experts discussed the possibility of an early curtailment of QE in the first half of 2022 a month ago, then today, such prospects already look vague. This fact serves as an anchor for the AUD/USD pair.
As a result, the current fundamental background contributes to a further decline in the Australian dollar. At the moment, the pair is testing the support level of 0.7380 (lower line of the Bollinger Bands on the daily chart). If the bears break through it (which is very likely), then the next one will be the support level of 0.7300.
The material has been provided by InstaForex Company - www.instaforex.com