The Australian dollar renewed its 7-month low against the US dollar today, falling to 0.7418. The reason for the next downward momentum was the speech of Reserve Bank of Australia Governor Philip Lowe, which took place during the Asian session on Thursday. Lowe announced his position just a day after the announcement of the results of the Australian central bank's July meeting. This was not in favor of the aussie. However, the day before yesterday, the downward momentum was limited by the support level of 0.7480 (the upper border of the Kumo cloud coinciding with the lower line of the BB indicator on the weekly chart). The bears of the AUD/USD pair tried to overcome this price level several times, but in vain. And today, the bears plunged to the bottom of the 74th figure, where they were last in early December last year.
It is noteworthy that Lowe did not say anything fundamentally new today. But his rhetoric was exclusively dovish in nature, whereas following the results of the July meeting, the central bank tried to maintain a certain balance in its statements. In an accompanying statement, the RBA indicated that the Australian economy is recovering at a faster pace, which indicates its "stress resistance". Noting the recovery of the national economy, the central bank reduced the size of the stimulus program (compared to the previous two rounds). The RBA announced the next round of purchases of government bonds in September, which will last at least until mid-November – with a weekly pace of 4 billion Australian dollars (instead of the current 5 billion).
Commenting on the results of the last RBA meeting today, Lowe first of all stressed that the reduction in the volume of weekly purchases to 4 billion "should not be perceived as a curtailment of the central bank's support." In his opinion, the Australian economy still needs to be stimulated, despite the impressive pace of recovery. After that, Lowe focused his attention on the problems faced by the national economy. For example, he admitted that the Australian labor market is growing at an "outstanding pace" this year (according to the latest data, the unemployment rate in the country has fallen sharply – to 5.1%). However, according to Lowe, there is a downside: positive employment trends are not accompanied by equivalent "surprises" in wages and prices. Lowe complained that most enterprises and companies pay too much attention to cost control, and not to raise wages. At the same time, according to his estimates, it will take an excess of wage growth above 3% for inflation to rise to the target range.
In general, he paid quite a lot of attention to inflation. Among the key macroeconomic indicators, this is the weakest link. The consumer price index came out at the level of 0.6% in the first quarter of this year, with a forecast of growth to 0.9%. For comparison, it can be noted that the CPI was at the level of 1.6% in the third quarter of last year. Commenting on these figures, the head of the RBA noted that the tightening of monetary policy parameters will depend "not on the onset of any specific date", but on incoming data – primarily in the labor market (especially with regard to the level of wages) and inflation. Lowe was also concerned about the latest coronavirus trends. Let me remind you that the Australian authorities are now trying to control the spread of the so-called "Indian strain "("Delta"), which is more dangerous and more contagious compared to the "classic " COVID-19 strain. In particular, in the country's largest city – Sydney –an isolation regime has been in effect for more than two weeks. And yesterday it became known that the head of the state of New South Wales decided to extend the quarantine in this 5-million megalopolis for another week. Meanwhile, the number of new cases of coronavirus infection continues to grow, and the vaccination campaign is being implemented extremely poorly. Only 8% of Australians are fully vaccinated against COVID-19 – this is the lowest figure among high-income countries in the world. In addition, do not forget that at the moment entry into the country is completely prohibited for all foreigners. Only citizens and permanent residents of the country can return to their homeland from abroad (while the total number of repatriates is limited to 3,500 per week). And as the head of the country's government said yesterday, Australia's borders will remain closed for foreigners until December 2022. The head of the Reserve Bank also drew attention to this circumstance today. According to him, a prolonged closure of the borders may lead "to a further increase in pressure on wages in some sectors." In other words, wages and inflation indicators were again under pressure.
Thus, the Australian dollar today quite reasonably slumped and updated multi-month lows against the US dollar. Lowe's rhetoric was extremely dovish, putting pressure on the AUD/USD pair. The pair is located between the middle and lower lines of the Bollinger Bands indicator on the daily chart, as well as under the Kumo cloud, which indicates the priority of the downward movement. The first, and so far the main target of the downward movement is the 0.7400 mark, which coincides with the lower Bollinger Bands line on the same timeframe.
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