Australian Dollar Talking Points

AUD/USD continues to trade in a narrow range amid the limAUD/USD continues to trade a narrow range amid the limited reaction to the US Non-Farm Payrolls (NFP) report, but the failed plan to test the March high (0.6685) warns of a possible shift in market behavior because the rate of exchange snaps the upward trending channel carried over from March.

AUD/USD Rate to Face Record Drop in Australia Employment

AUD/USD trades near the monthly high (0.6548) ahead AUD/USD trades near the monthly high (0.6548) before Australia’s Employment report, but the update may drag on the rate of exchange because the economy is predicted to shed 575K jobs in April, which might mark the most important decline since the info series began in 1978.

Image of DailyFX economic calendar for Australia

At an equivalent time, the jobless rate is projected to increases to eight .3% from 5.2% in March, and therefore the economic shock from COVID-19 may put pressure on the Federal Reserve Bank of Australia (RBA) to further support the economy because the financial institution anticipates unemployment to “remain elevated for a few time.”

It remains to be seen if the RBA will still push monetary policy into uncharted territory because the quarterly Statement on Monetary Policy warns that the “headline inflation is predicted to show negative within the June quarter, for the primary time since the first 1960s,” and Governor Philip Lowe and Co. may strike a more dovish tone over the approaching months as fiscal stimulus programs just like the Jobkeeper Payment is about to expire on September 27.

In turn, the RBA may show a greater willingness to deploy more unconventional tools in 2020 as “the speed and timing of the economic recovery is extremely uncertain,” but the financial institution may plan to delay at subsequent meeting on June 2 as “gradual recoveries should follow within the last half of the year, supported by the easing of restrictions and therefore the significant expansion in both fiscal and monetary policies.”

With that said, the Australian dollar is probably going to face headwinds if the RBA reverts back to a dovish forward guidance, and therefore the failed plan to test the March high (0.6685) warns of a possible shift in AUD/USD behavior because the rate of exchange snaps the upward trending channel carried over from the previous month.

AUD/USD Rate Daily Chart

Image of AUD/USD rate daily chart

Source: Trading View

  • Keep in mind, the monthly opening range has been a key dynamic for AUD/USD in the fourth quarter of 2019 as the exchange rate carved a major low on October 2, with the high for November occurring during the first full week of the month, while the low for December materialized on the first day of the month.
  • The opening range for 2020 showed a similar scenario as AUD/USD marked the high of the month on January 2, with the exchange rate carving the February high during the first week of the month.
  • However, the opening range for March was less relevant, with the high of the month occurring on the 9th, the same day as the flash crash.
  • Nevertheless, the advance from the yearly low (0.5506) appears to have stalled ahead of the March high (0.6685) as AUD/USD finally snaps the upward trending channel, with the Relative Strength Index highlighting a similar dynamic as the oscillator fails to break above 70 and reverses course ahead of overbought territory.
  • Need a break/close below the 0.6380 (50% expansion) to 0.6450 (38.2% expansion) region to bring the Fibonacci overlap around 0.6310 (61.8% expansion) to 0.6340 (161.8% expansion) on the radar.
  • Next area of interest comes in around 0.6200 (78.6% expansion) to 0.6210 (78.6% expansion) followed by the overlap around 0.6080 (100% expansion) to 0.6120 (78.6% retracement).


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