The AUD/USD pair is already testing the level of 0.72 for the first time since November last year. The current fundamental picture is negative for the Australian dollar: the prospects for further recovery of the Australian economy look vague despite the growth of key macroeconomic indicators in view of tightening quarantine restrictions in the country. The "delta variant" of the coronavirus is pulling the AUD/USD pair to the bottom of multi-month price lows. The Australian dollar is losing its position not only because of the introduced lockdown but also because of the general flight from risks. At the same time, the minutes of the Reserve Bank of Australia's July meeting published yesterday only worsened the situation of the pair.
It should be noted that RBA's last meeting was held on July 6, that is, even before the deterioration of the epidemiological situation in the country and before the introduction of retaliatory measures by the authorities of the largest states. But even without considering these factors, it can be concluded that the July meeting of the Australian regulator was "dovish". The members of the Central Bank made it clear that we should not expect a tightening of the parameters of monetary policy in the next three years. According to the Central Bank, the economy will reach compliance with the conditions necessary for a rate increase "not earlier than 2024".
On the one hand, the regulator noted that the recovery in the labor market is taking place at a faster than expected pace, but on the other hand, they pointed to weak wage growth rates. The Central Bank also complained about weak inflation data: the consumer price index shows a downward trend for the third quarter in a row in quarterly terms, while the Central Bank stressed in a separate line that it will not raise the rate until the actual inflation is settled steadily in the target range of 2-3%. In this context, it is emphasized that the RBA still intends to implement an extremely accommodative policy.
As for the prospects for QE, it should be recalled that the Reserve Bank announced the launch of the third round of QE at the July meeting, which will begin in September (that is, when the current round of the program ends), reducing the size of the incentive program compared to the previous two rounds. The next round of purchases will last at least until mid-November at a weekly rate of 4 billion Australian dollars, instead of the current 5 billion.
But at the same time, the regulator indicated that the Central Bank will adhere to a flexible approach to increasing or reducing the size of weekly bonds purchases in light of the high level of uncertainty regarding the prospects for the economy in the future.
This is an important phrase taking into account the recent events. Currently, more than 14 million Australians are in isolation (with a population of 25 million in the country). The states of Victoria and New South Wales are under quarantine due to the spread of the Delta strain. Yesterday, the state of South Australia joined them – residents of the state are allowed to leave their homes only when necessary, in particular, to buy food, as well as to receive medical services, including testing and vaccination against COVID-19.
At the same time, the vaccination campaign is proceeding at an extremely slow pace. At the moment, only 11% of the country's population is vaccinated against COVID-19. For comparison, it can be noted that about 70% of the country's residents have already been fully vaccinated against COVID-19 in Israel, and among Israelis over 50 years old, the number of vaccinated has reached 90%. As for the UK, 70% of the adult population has also completed immunization. In the European Union, more than half of the adult population has already been fully vaccinated. Against this background, Australia looks like a clear outsider.
Considering the latest news about coronavirus, it can be assumed that the Reserve Bank of Australia will voice exclusively "dovish" rhetoric at subsequent meetings, allowing for a softening of the parameters of monetary policy. Such prospects put the strongest pressure on the Australian dollar – especially when paired with the US dollar, which is in high demand on the market.
In this case, fundamental factors such as general flight from risks, the deterioration of the epidemiological situation in Australia, new lockdowns in the largest states of the country, weak vaccination rates, and the expectation of "dovish" rhetoric from the RBA pull the AUD/USD pair down to new price lows. It is worth noting that the US currency is in demand not only because of the "hawkish" expectations of the market – the US dollar is a favorite, including due to its status as a protective instrument.
From the point of view of technical analysis, the situation is as follows. On the daily chart, the pair is located below the lower line of the Bollinger Bands indicator, under all the lines of the Ichimoku indicator (including the Kumo clouds). The downward target in the medium term is the support level of 0.7200, which corresponds to the lower border of the Kumo cloud and coincides with the average line of the Bollinger Bands on the monthly chart.
