The Reserve Bank of Australia announced in its latest interest rate resolution to maintain its interest rate unchanged at 0.1%, in line with market expectations (the RBA once again emphasized that given that inflation and employment are still some distance away from the target, it is not expected to raise interest rates before 2024). In terms of the bond purchase plan, the central bank also announced that it will buy 4 billion Australian dollars of bonds every week until mid-November, and continue to use the April 2024 bond as the target bond for the yield of the 3-year Treasury bond. After the interest rate decision, the Australian Dollar against the US Dollar fell to 0.7543, and then reversed the decline and continued to rise.
Figure 1: Australian GDP data. Source：Trading Economics
In any case, compared to the beginning of the pandemic last year, the Australian economy has improved significantly. From the economic data perspective, RBA and government stimulus boosted household consumption, private investment and investment in machinery and equipment have all recorded growth. Although exports grew slightly less than imports, the annual rate of the Australian economy rose to 1.1% in the Q1 2021 after the sharp contrast to the 6.2% decline in the second quarter of 2020. In addition, the country’s first quarter GDP quarterly rate announced last month was 1.8%, slightly less than the 3.3% and 3.1% recorded in the third and fourth quarters of last year. However, this level is still higher than the average level between 1959 and 2021, which is 0.84%.
Figure 2: Australia’s unemployment rate and inflation rate. Source：Trading Economics
Since November last year, Australia’s adjusted unemployment rate has recorded a 7-month consecutive decline to 5.1%. This reading is also the lowest since February 2020. With the gradual lifting of restrictions, the number of part-time and full-time employment has increased, and the overall employment participation rate has risen above the 6-month low (65.9%) at 66.2%.
On the other hand, Australia’s current annual inflation rate recorded the highest reading since the first quarter of 2020, at 1.1%, but overall it is still far below the 2% to 3% target range set by the Reserve Bank of Australia. It is worth noting that the slow national vaccination campaign and the rapid spread of the Delta virus strain are still hidden dangers for economic recovery. Although studies have shown that existing vaccines have the ability to resist the Delta virus, the reliability of the results still needs more time and data to prove.
On the other side of the world, this Thursday, the Federal Reserve will also announce the minutes of the June monetary policy meeting. Although last week’s non-agricultural employment numbers performed well and recorded an increase of 850,000 people, which exceeded market expectations, an increase of 700,000 and an increase of 583,000 from the previous value (pre-revision increase of 559,000), however, considering that the unemployment rate is still small Increased to a high level of 5.9% (far higher than the pre-pandemic level (3.5%); among them, the number of unemployed for more than 27 weeks has risen to 4.0 million and accounted for about 42% of the overall unemployed), as well as the employment participation rate and wage increase The rapid performance is not as good as expected, and the market generally expects that the central bank is less likely to release a hawkish signal in the short term.
Technical Analysis : AUDUSD & AUDJPY
AUDUSD
The 4-hour chart shows that the Australian Dollar against the US Dollar rebounded from the low of 0.74437 and formed an asymmetric double bottom pattern, followed by the positive divergence signal released by the MACD double MA and the RSI all the way up to the 0.75 level.
Currently, the currency pair is testing the key 100-SMA Resistance and 0.7570 (the same 100% Fibonacci extension level) resistance area. If the bulls stay strong and the candle closes above the area, then the currency pair may continue its rally and further test the confluence area of 0.7605 (127.2% Fibonacci extension level) to 0.7620 (38.2% Fibonacci retracement level). A break in this area will also mean the end of the downtrend.
In addition, if 0.7570 fails to hold its line of defense, then this may also mean that the Australian dollar against the US dollar continues to fall. The support below includes 0.7520 (61.8% Fibonacci extension level), 0.7500 psychological level (the same 50.0% Fibonacci retracement level) and 0.74437 (July 2 low).
AUDJPY
In Japan meanwhile, in the Regional Economic Report, the BoJ increased the economic assessment of 2 regions namely: Hokuriku and Kinki, downgraded 2 regions: Chugoku and Shikoku, and kept 5 regions unchanged: Hokkaido, Tohoku, Kanto-Koshinetse, Tokaiand Kyshu-Okinawa. Economic conditions remain in a dire situation as the impact of the new coronavirus slows in the pace of improvement.
Governor Haruhiko Kuroda said, “Japan’s economy remains in severe form but is improving as a trend… As the impact of the pandemic gradually subsides, the economy will recover thanks to increasing external demand, loose monetary policy and the effects of government stimulus measures.”
AUDJPY – The pair has been trading in a price range for the 19th week, between prices 81.97 – 85.79 area . The Yen which tends to weaken and the AUD which is supported by commodity prices seem interesting to analyze post RBA meeting.
In June, there has been a correction of 1.6% eventhough the asset held in the range. The rally momentum is clearly reduced because the correction was validated by AO in the sell area and the price movement below the Kumo. However, uptrend sustains despite the break of the 81.97 Support level, the price is still above the 200-day MA. A break of the immediate Resistance at 84.25 will turn attention to the high of the 85.79 range. If the price move above the latter, the rally could extend higher on the average yearly high around 90.00. On the flipside if the price move below the 81.97 Support, it could create a deeper retracement to the 79.19 or 50.0%FR level from the pullback running low of 73.12 to the interim top of 85.79. Overall the trend is still moving up.
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Larince Zhang – Regional Market Analyst
Ady Phangestu – Market Analyst – HF Educational Office – Indonesia
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