The Australian dollar retreated from the heights it conquered. The aussie updated its multi-month high against the US currency yesterday, reaching the 0.7415 level. But AUD/USD bulls failed to gain a foothold in the 74th figure, primarily due to the greenback's corrective growth. Today, the Australian was under additional pressure from its own data during the Asian session. Data on Australian GDP growth in the second quarter was in the red zone, falling short of the weak forecast values. All this suggests that the attack on the 74th price level is still being postponed – probably until Friday, when American Nonfarm data will be published.
The second quarter of 2020 was a failure for all countries of the world - perhaps without any exceptions. Many countries set historical anti-records (such as the United States, Britain, and Japan), while some got off with relatively light fright (such as Poland). But the consequences of the coronavirus crisis were felt by everyone in one way or another. Australia was no exception. Take note that restrictive measures in Australia were introduced in March, and in April (and partly in May): Australia was closed for quarantine and the country only began to gradually weaken the lockdown in late spring.
Therefore, the forecasts of experts were of a corresponding nature: analysts expected a significant slowdown in the economy - both in quarterly and in annual terms. But the real numbers turned out to be worse than predicted. Thus, on a quarterly basis, a decline to -6% was expected, while the indicator dropped to -7%. In annual terms, experts predicted a decline to -5.2%, in reality, the indicator dropped to -6.3%. Take note that some analysts were more optimistic in their forecasts, pointing out that Australia began to ease the quarantine ahead of schedule, so that the country's economy could have time to show signs of recovery in the second quarter. But, as it turned out, such rosy forecasts do not correspond to reality: the Australian economy was in a deep knockdown in the second quarter.
The AUD/USD pair reacted rather restrainedly to such a disappointing report. The price dropped to 0.7340, but the downward momentum was limited. The downturn in the Australian economy in the second quarter was an expected event, so no one was surprised, even considering the fact that it was in the red zone.
All this suggests that AUD/USD traders are currently guided by the behavior of the US currency and the dynamics of current macroeconomic indicators. In addition, the focus is on the coronavirus situation in Victoria. Unfortunately, they continue to register new cases of infection – 70 cases of COVID-19 in the state were revealed over the past day. Strict quarantine was extended in the state until September 13, and according to many analysts, the local lockdown will be extended further, at least until the end of this month.
Still, the US dollar is the locomotive of the AUD/USD pair's movement. The pair recently grew due to the greenback's general weakness because the Federal Reserve decided to revise its strategy. The US Fed's move to target average inflation weakened the position of dollar bulls, after which the dollar index collapsed to two-year lows. However, quite good macroeconomic data were published in the US when the US session began on Tuesday. For example, the ISM manufacturing index jumped to 56.0. This value was the highest since January 2019. The indicator was released in the green zone, significantly exceeding the forecast values (54.2 points). In addition, the price index rose to 59.5 points (from the previous value of 53.2), and the index of new orders jumped to 67.6 points from 61.5. The employment index also improved to 46.4 points.
This made it possible for the greenback to pause its fall and go for a correction: the dollar index rose from a multi-month low of 91.81 to the current level of 92.4. Dollar pairs followed the US currency,and the AUD/USD pair was no exception. The release of data on Australian GDP growth only added to the picture, but was not a direct catalyst for the downturn.
Judging by the market's reaction to today's data release, the US dollar will continue to set the tone for the AUD/USD pair - in turn, the aussie will be led. In my opinion, the greenback's correction will be temporary, as the consequences of the Fed's strategic decision will haunt the dollar for a long time. In the medium term, a lot will depend on the Nonfarm data - especially in the context of wage growth. If Friday's numbers turn out to be disappointing, the US dollar will fall into a wave of sell-off again, and buyers of the AUD/USD pair will have another opportunity to gain a foothold in the 74th figure area.
Technically, the pair is above the Kumo cloud of the Ichimoku indicator and above all of its lines on the daily chart. The bullish Parade of Lines signal indicates the potential for further price growth. In addition, the pair is located in the upper line of the Bollinger Bands indicator. It also indicates bullish sentiment among traders. You can consider the 0.7415 level as the nearest target of the upward movement - this is a multi-month price high reached on September 1.
