Today, the Australian dollar has another reason to approach the 74th mark. This is due to the publication of extremely good data on Australia's economic growth for the third quarter during the Asian session on Wednesday. The indicators came out in the "green zone", indicating the stress resistance of the national economy. Moreover, despite the fact that it was in the third quarter when the 100-day lockdown occurred in the largest state of the country, Victoria, the main factors of the release exceeded the forecast values, which were already quite optimistic.
But it is fair to say that the above-mentioned state was the only region where economic growth was not observed, due to strict quarantine restrictions (for example, curfew was in effect even in Melbourne). At the same time, Victoria is responsible for a quarter of the country's economy. But even after losing such a powerful ally, the Australian economy was able to set a record in the third quarter: GDP grew at the strongest pace in the last 44 years. So, in quarterly terms, this indicator rose from -7% (second quarter) to 3.3%. Moreover, Australian Finance Minister, Josh Frydenberg noted that if Victoria grew with the rest of the country, then the national figure would be all 5%. He also recalled that the Australian economy came out of the recession, overcoming a strong economic shock that happens once in a century.
Against this background, the AUD/USD pair reacted by approaching the limits of the 74th level. However, it did not manage to break through the level of 0.7400. The reason for this was the not so optimistic rhetoric of RBA's head, Philip Lowe, who spoke to the members of the country's Lower House of Parliament today.
He warned that although the country managed to come out from economic recession, there is still a long way from fully recovering. For example, even with a general stable growth for the economy, Australia will not reach the level of production recorded at the end of 2019 until the end of next year. Lowe also complained about the high level of underemployment, predicting that the unemployment rate will be above 6% for another two years. In view of this, he noted that the pressure on wages and prices will remain low. In 2021 and 2022, wages are expected to grow by less than 2%, while inflation growth in basic terms will be only 1% next year and 1.5% in 2022. Lowe reminded MPs that this is well below the RBA's inflation target, so interest rates will remain at historic lows for several years. At the same time, he said that the Central Bank is ready to consider the option of expanding the incentive program.
However, the head of the RBA did not say anything new. His rhetoric was just similar to in his previous speeches. It's just that AUD/USD traders think that his today's speech became somewhat aloof or cold. Against the background of an optimistic release, his statements were quite skeptical and disappointing. Therefore, buyers of the pair were forced to retreat from the limits of the price level 0.7400.
But, in my opinion, such price declines should still be used to open longs. The US dollar remains a vulnerable currency, and this fact was confirmed again by yesterday's events. The USD collapsed again across the market after a short-term correction, reacting to the disappointing release of the ISM manufacturing index and Mr. Powell's rhetoric. Here, the ISM index slowed down to 57.5 points in November, while it reached almost 60 points in October. At the same time, the employment component dropped to 48.4 (previous value was 53.2 points). In turn, Fed's head actually talked about the easing of monetary policy parameters yesterday, saying that the regulator is ready to use all its tools to support the economy during the COVID-19 pandemic.
On the other hand, the public conflict between the Federal Reserve and the Treasury Department (Steven Mnuchin) continues to be felt. Yesterday, Mr. Mnuchin urged congressmen to urgently redistribute funds previously allocated to the regulator to help entrepreneurs. In particular, he offered to allocate them $ 300 billion in grants form, not loans. It was known that the Fed is categorically against this initiative.
In view of this, the US dollar index updated new lows, and is currently at 91.160. The last time the indicator was at such lows was in March 2018.
Therefore, from the current positions of the AUD/USD pair, we can consider longs with the first target at 0.7400 (upper Bollinger Bands line on the daily chart) and the next target at 0.7430 (upper Bollinger Bands line on the weekly chart). On both D1 and W1, the price is between the middle and upper lines of this indicator, as well as above all the lines of the Ichimoku trend indicator. All this indicates that the priority is the upward scenario.
