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Aussie May Drift Lower after Employment Report

June’s employment report for Australia is likely to catch investors’ eyes on Thursday 0030 GMT as the nation’s economy tumbled into a recession in the first half of the year. However, Australia avoided the high Covid-19 cases of other countries, recording less than 10,000 in total or about a sixth of the daily cases seen in the United States in recent days.Unemployment expected to see further increases

In the previous release, the unemployment rate jumped to 7.1% from an upwardly revised 6.4% in April. It was the highest jobless rate since October 2001 due to business closures and lockdowns during the Covid-19 pandemic. June’s prediction for the unemployment rate is to tick even higher to 7.4%, while the net change in employment is expected to show that the economy added 112.5K jobs from a decline of 227.7K in May. However, the participation rate is forecasted to increase to 63.6% from 62.9% before.

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RBA kept rates unchanged as expected

In July’s policy meeting the Reserve Bank of Australia (RBA) left its cash rate unchanged at a record low of 0.25%. Policymakers have made it clear that the economy is going through a very tough period and is experiencing the biggest economic contraction since 1930. They also referred that the nature and the speed of the recovery is uncertain, despite some signs of improvement in recent weeks. The Bank is ready to scale-up its bond purchases once again and will ensure that bond markets will remain functional and achieve the yield target for three-year Australian Government Securities (AGS). Moreover, policymakers clarified that the cash rate will remain flat until progress is made towards full employment and inflation is within the 2%-3% target.

Despite the previous months’ upside rally in the Australian dollar, having a look at the outlook for the US economy, the US Federal Reserve had emphasized that the economy is slowing down after the resurgence of Covid-19, driving the pair into a neutral mode.

Aussie moves horizontally the past month

So, from the technical point of view, aussie/dollar moved slightly lower, dropping near the 20-day simple moving averages (SMA), indicating a flattening mode. The price could be at risk of a bearish retracement if the employment report disappoints. Price action is likely to challenge again the 0.6800 handle after the drop beneath the 40-day SMA. A leg below it could send prices until the 23.6% Fibonacci retracement level of the up leg from 0.5506 to 0.7067 at 0.6685 and the 200-day SMA currently at 0.6667.

Alternatively, upbeat numbers on employment are likely to propel the price higher towards the 0.7030 – 0.7067 resistance area before meeting the 0.7205 barrier, taken from the high of April 2019, shifting the outlook to strongly bullish.

Overall, aussie/dollar is losing some momentum in the near term, while a climb above 0.7200 could add optimism for buying interest.