The Australian dollar is paired with the US currency demonstrates a downward impulse. The aussie is getting cheaper across the market after the release of disappointing data on the growth of the labor market in the country. Almost all the components of the release came out in the red zone, while updating multi-month lows. This release is important in itself, but in this case it must also be viewed through the prism of the last meeting of the Reserve Bank of Australia. Chinese data on industrial production were also disappointed. Even the general weakening of the US dollar did not help the AUD/USD bears- the aussie shows a rapid decline, which may end in the area of annual lows.
Looking ahead, it is worth noting that the greenback is also getting cheaper because of China - apparently, the historical trade deal was again in jeopardy. But this fact is as disastrous for the Australian currency as it is for the US dollar. We'll talk about the prospects for a trade war a little lower, but let's start with the Australian macro statistics.
The labor market report really turned out to be devastating. The unemployment rate unexpectedly rose to 5.3% (against the forecast of 5.2%), and the employment rate collapsed into the negative area. Moreover, this indicator has updated three-year lows - the number of employees fell by 19 thousand. The negative dynamics in October was demonstrated by both the component of full employment and the component of part-time employment. Let me remind you that the number of employees increased by only 16 thousand in September - but mainly due to the full-time component. This fact made it possible for the aussie to stay afloat, as regular positions require higher salaries. However, the October results disappointed "on all fronts."
But more recently, the Australian currency showed optimism. The results of the last RBA meeting were in favor of the aussie, after which the AUD/USD pair impulsively jumped to around 0.6930. Contrary to pessimistic forecasts, the RBA announced that the previously taken measures to reduce rates "are already bearing fruit." According to RBA members, easing monetary policy parameters supported the growth of employment and income, stimulating inflation indicators to return to the target range.
Today's data served as a kind of refutation of this thesis. It is worth noting that, following optimistic estimates, the Australian regulator did not rule out further easing of monetary policy. RBA members noted that they could reduce the rate in the foreseeable future "in the event of such a need." It is obvious that a decline in key economic parameters amid a possible escalation of the trade war will again bring the issue of rate cuts back on the agenda.
There are certain prerequisites for this. Indeed, in addition to disappointing statistics, negative rumors have come to the market today regarding the prospects for US-Chinese dialogue. According to an influential publication of the Wall Street Journal, Beijing is not going to make a commitment under the deal to annually purchase US agricultural products for a certain amount (namely, $50 billion). According to newspaper sources, the parties could not find a compromise at this stage of negotiations, after which the dialogue actually stalled. The Chinese quite reasonably believe that a deal without specifying the exact amount will allow them to act "more flexibly." In addition, in this case, Beijing remains the lever of pressure on Washington if the Americans backtrack.
Now it's clear why Trump recently voiced a rather tough stance towards China. Speaking at the Economic Club in New York, he threatened Beijing with new fees if the parties did not sign the deal. He added that the White House would agree to a trade agreement only if it would be beneficial to the United States.
After that, the Australian dollar was under additional pressure. Which is understandable, because we are talking about the risk of resuming a large-scale trade war, which will aggravate the already difficult situation in the world economy. Australia is at the forefront in this context, since China is the country's main trading partner, and the further economic recession of China will have a strong negative impact on key Australian indicators. Moreover, the head of the RBA in one of his interviews separately focused on this, not excluding the option of lowering the interest rate. Therefore, in this case, we are talking not only about the prospects for US-Chinese relations, but also about the prospects for Australian monetary policy.
Given the prevailing fundamental background, we can assume that the AUD/USD pair will continue the downward trend, at least to the level of 0.6750 (the lower boundary of the Kumo cloud on the daily chart). If the bears gain a foothold under this target, the next target of the downward movement will be the mark of 0.6660 - this is the area of annual lows that coincides with the lower line of the Bollinger Bands indicator already on the weekly chart.
