The Australian dollar, paired with the US currency, has been trying to return to the 70th figure for the second week. At the end of last week, the AUD/USD bulls managed to reach the local price peak of 0.7025at the end of last week against the background of a weak report on the US labor market. However, the bears rather quickly seized the initiative and returned the Aussie to their previous positions. The psychologically important level of 0.7000 is a key price outpost for traders. This level held back the onslaught of sellers for months but now, the inverse function performs, which keeps the buyers in the area of 69-69 figures.
At first glance, good data on the labor market also did not impress the members of the Australian regulator. First, the unemployment rate remained at 5.2% contrary to the expectations of most experts, while the consensus forecast suggested a decline to 5.1%.On the one hand, the increase in the number of employees showed a positive trend as it jumped to 42 thousand with a growth forecast of 16 thousand. However, the structure of this indicator indicates the prematurity of optimistic conclusions. The fact is that employment growth in May was almost entirely due to part-time hiring but full employment has grown negligible only to 2.5 thousand, continuing the negative trend. This factor adversely affects the dynamics of wage growth as full-time positions offer higher wages and a higher level of social security. Not surprisingly, the level of consumer confidence in Australia has a strong downward trend against the background of weak wage growth rates.
Let me remind you that at the last meeting, the Reserve Bank of Australia lowered the interest rate by 25 basis points. The Australian dollar then ignored this fact or to be more precise, this event was already taken into account in the prices. Yet, traders are still wondering whether the Australian regulator intends to continue on the path of easing monetary policy or could this be considered a warning signal. Here, expert opinions are divided. Most of them believe that the Australian Central Bank is not only ready to cut rates further. But most likely, it will carry out these intentions already at the July meeting. The probability of such a step is estimated at 70-75%. According to supporters of the "dovish" position, many factors contribute to the mitigation of monetary policy parameters including a low consumer activity, the situation in the housing market, and a slowdown in inflation amid a slowdown in GDP growth. In addition, the general situation is aggravated by the US trade war with China, on which Australia is quite economically dependent.
However, supporters of the low profile of the RBA assure traders that the Australian regulator will resort to one more round of rate cuts only if, firstly, the trade war gets its active continuation after the G20. Secondly, if the key economic indicators Australia will be lower than expected values by the end of the year. In this case, according to analysts, the RBA will lower the rate either in December or in early 2020.
Today's release has reinforced investors' concerns that the Australian Central Bank will resort to another rate cut next month. This fact puts pressure on the AUD/USD pair, after which, the price again moved away from the key mark of 0.7000 to the base of the 69th figure.
In addition, other fundamental factors put pressure on the Aussie. The growth of anti-risk sentiment was due to both the events in Hong Kong and the ongoing trade confrontation between the United States and China. Yesterday, there were serious clashes between protesters and law enforcement officials on the streets of Hong Kong. Protesters called for an immediate end to the consideration of amendments to the law on the extradition of suspects, which would allow Hong Kong to extradite suspects to jurisdictions with which it does not have an extradition agreement including Taiwan, Macau and mainland China. According to the protesters, this rule of law will become a threat to those activists who disagree with official Beijing's policies. It should be noted here that Hong Kong is considered as the financial capital of Asia. Therefore, such a serious confrontation in the largest financial center of the world had a corresponding impact on the market. The demand for safe harbor instruments has increased, while risky assets, were among the outsiders, including the Australian dollar.
Thus, the AUD/USD pair has the potential for a local decline to the price minimum of the year at the support level of 0.6860, which coincides with the bottom line of the Bollinger Bands indicator on the daily chart. In my opinion, the downward dynamics of "Aussie" will be more modest and will stop at the base of the 69th figure.
