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18.11.2020 09:10 AM
AUD/USD. Buying the Australian dollar on downturns

The AUD/USD pair continues to approach the level of 0.73. Earlier, buyers of this pair tried to retest this price level and even approached the key resistance level of 0.7350. However, the temporary growth of the dollar prevented the bulls of AUD/USD to develop the upward trend. Therefore, the Australian dollar was forced to go for a correction and take a defensive position at the limits of the 73rd mark. Generally, the fundamental background supports the further growth of the pair, although tomorrow's data may negatively affect it. However, a deep price downturn can be seen as a reason to open long positions. In my opinion, if tomorrow's release is really negative, then the corresponding reaction of traders (selling the AUD/USD pair) will be temporary.

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Australia's key data on labor market growth will be published tomorrow, whose preliminary forecasts are expected to be negative. However, even in a "negative" form, this indicator can support the Australian dollar and vice versa. For example, last month's data was released in the "green zone", but the AUD/USD pair still declined despite the seemingly good results. First, according to general forecasts, the unemployment rate has increased, which was supposed to rise to 7.2%, but rose to 6.9%. The most negative forecasts did not come true, but the indicator showed negative trends.

Second, the growth rate in the number of employees declined: the indicator fell into a negative zone for the first time since May this year. Nevertheless, this indicator came out slightly better than forecasts (-29 thousand instead of -40), but the fact remains that Australians are more likely to lose jobs than to find a job. Moreover, the negative trend was mainly due to a reduction in the full employment component. If the indicator of partial employment growth declined by 9 thousand, the indicator of full employment went into the negative zone by 20 thousand. It should be recalled that this imbalance has been worrying members of the Australian regulator for several months. The Central Bank's reports have repeatedly indicated that full-time positions offer higher wages and a higher level of social security compared to temporary part-time jobs. This factor affects the dynamics of wage growth, and indirectly-the dynamics of inflationary growth.

Thus, the market reaction to tomorrow's release may be unusual. For example, the AUD/USD traders reacted rather restrainedly to the Australian Non Farms last month, although the numbers went into the green zone. And in September, the Australian dollar collapsed altogether in response to a not so bad data.

There is no intrigue as for tomorrow's publication. Most experts believe that the Australian labor market will show negative trends again. Thus, the unemployment rate should rise (up to 7.2%), and the growth rate of the number of employed should be in the negative zone (-29 thousand) again. According to experts' forecasts, both full-time and part-time employment will decline. In addition, the share of the economically active population should also decline.

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On the one hand, such a result can weaken AUD's position, while on the other hand, traders' negative reaction is likely to be temporary. First, the market may be favoring the decline in the number of people employed in the country. After all, we are talking about October data, while the main quarantine restrictions associated with coronavirus were lifted in Australia only at the end of last month. Given these circumstances, the market may ignore the negative result. Secondly, unemployment growth has already been partially taken into account in prices, after RBA's corresponding forecasts.

By the way, the minutes of the last RBA meeting was published yesterday, in which the regulator quite positively assessed the growth prospects of the national economy and assured the market that it is not going to lower the interest rate into a negative zone. At the same time, the Central Bank warned that the labor market indicators will show negative dynamics in the near future. In other words, the Reserve Bank of Australian was ahead of the curve.

All this suggests that the possible downward impulse of the AUD/USD pair based on the results of tomorrow's data should be used to open longs. The vulnerability of the US currency, as well as its own arguments for the growth of its Australian counterpart (lifting quarantine restrictions, creating an Asian free trade zone, etc.) will push the pair back up to the first resistance level of 0.7350, which corresponds to the upper line of the Bollinger Bands indicator at the four-hour time frame.

Irina Manzenko,
Analytical expert of InstaForex
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