The Australian dollar has hit two-year highs against the US currency, with buyers of AUD/USD taking the 74th figure today for the first time since August 2018. The impulsive growth of the pair is primarily due to the weakness of the dollar: the dollar index dropped to multi-month lows, reflecting the market's doubtful attitude towards the American's prospects. In turn, the Australian dollar has its own arguments for its growth. The September meeting of the Reserve Bank of Australia turned out to be in favor of the "Aussie", despite the cautious rhetoric accompanying the statement. In view of this, traders have identified key messages for themselves, which boils down to the fact that the Central Bank is ready to take a break further, despite the weak economic recovery and recent events in the state of Victoria.
In general, RBA repeated the position today, which was already voiced out during previous meetings. The only change is an increase in the size of the lending program with a simultaneous prolongation of its action. All other parameters of monetary policy, as well as the wording of the accompanying statement, remained unchanged. The regulator recalled that the rate will remain at the current level until "progress is made on the issue of employment and inflation." There are no time guidelines here: politics will remain accommodative as long as it takes. At the same time, the RBA members did not rule out the possibility of using other measures to support the economy – for example, the Central Bank will increase the volume of purchases of government bonds or will continue the term of this program, if necessary.
Moreover, it commented on the latest data on the Australian labor market. Let me remind you that the growth in the number of employed in July was primarily due to part-time employment, while full-time employment showed a more modest result (71 thousand against 43 thousand). The unemployment rate came out at 7.5%. On the one hand, the result turned out to be better than expected (growth to 7.8% was predicted). But, firstly, unemployment is still growing, and secondly, the published figures did not reflect the situation that has developed in the state of Victoria. The Australian authorities introduced quarantine in this region only at the end of July, gradually tightening restrictive measures up to the introduction of a curfew in Melbourne. The release, while published in mid-August, only covered the period until mid-July. This suggests that "Australian Non Farmers" should be significantly worse this month.
This explains the negativity regarding the prospects for the recovery of the Australian labor market from the RBA. Today, members of the regulator announced that the unemployment rate will grow in the near future: The Central Bank noted that it may take several months for the market to begin to recover significantly.
However, despite such cautiously pessimistic assessments, the AUD did not yield its positions. On the contrary, it strengthened the attack on the 74th figure. Thus, according to the RBA members, the decline in the Australian economy "was not as strong as expected - and it is recovering in almost all sectors at the moment." Such an optimistic conclusion, firstly, was able to neutralize the general negatively cautious attitude of the RBA, and secondly, it acted as a kind of support for investors. The members of the regulator made it clear that the Central Bank will maintain a wait-and-see attitude in the near future (at least until the end of this year), especially amid the implementation of incentive programs by the government.
The commodity market also provides additional support to the Australian dollar. In particular, the cost of iron ore continues to hold above $ 100 per ton. According to the latest data, iron ore futures on the Dalian Commodity Exchange rose 3.8% to $ 124 per tonne: raw materials rose more than 10% over the month, amid strong demand from China.
This fundamental background allows the Australian dollar to test the 74th figure paired with the US dollar. On the one hand, it is supported by the commodity market and RBA's wait-and-see position, while on the other hand, the US dollar continues to be under pressure from the Fed's position, which allowed inflation to exceed 2%. This combination of fundamental factors preserves the priority for longs.
From a technical point of view, the priority is also behind the growth of AUD/USD, and on many upper time frames, such as H4, D1 and W1. So, on the daily chart, the price is on the upper line of the Bollinger Bands indicator, and the Ichimoku indicator has formed a bullish "Parade Line" signal. The weekly chart also shows the priority of the upward scenario: the pair is between the middle and upper lines of the Bollinger Bands indicator, and the price is above the Kumo cloud. The main target of the upward movement is 0.7460, which is the upper line of the Bollinger Bands indicator on W1.
