RBA Cites Optimism

The Australian Dollar has benefitted in recent weeks from the broad pickup in risk sentiment which has seen equities and commodities markets rallying. The easing of lockdown measures around the globe has turned investor focus towards the recovery which is now beginning and risk assets are being bolstered, helping support high yielding currencies such as AUD.

The Australian Dollar was given further support this week by the RBA. At its June meeting, the bank held policy levels unchanged and cited a more optimistic outlook. Australia has been one of the most effective countries in terms of controlling the COVID-19 outbreak, seeing just 102 deaths vs 108k in the US and 39k in the UK.

Governor Lowe noted that while the economy was still facing a recession there were signs that the “the depth of the downturn will be less than earlier expected.” In the statement issued alongside the rate decision, Lowe said The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely.

“And there are signs that hours worked stabilised in early May, after the earlier very sharp decline. There has also been a pick-up in some forms of consumer spending.”

However, Lowe did acknowledge that there is still a great deal of uncertainty in the outlook and noted that the pandemic would have “long last effects on the economy”. A record 1.6 million people have claimed unemployment in Australia as a result of the virus with wage growth having crumbled for those remaining employed.

Q1 GDP Not As Bad As Expected

Following the meeting, the release of Q1 GDP mid-week confirmed that Australia is now entering recessionary territory, registering its first contractionary reading since Q1 2011. However, with growth falling less than expected at -0.3% on the quarter vs -0.4% expected, AUD has remained support. The key test for the economy lies in the Q2 reading, however, given that this quarter captures more of the period affected by lockdowns. Two consecutive quarters of negative growth are needed to confirm a technical recession though many business analysts and economists note that the Australian economy has already entered a recession, ending 29 years of growth in the country.

Technical Views

AUDUSD (Bearish below .6989)

From a technical viewpoint. AUDUSD is now testing the long-term bearish trend line from 2013 highs which is holding as resistance for now. The move was capped by the retest of the yearly pivot at .6989 and with bearish divergence on momentum studies, there is room for a retest of the yearly S1 at .6680 in the near term unless price breaks above the yearly pivot on a closing basis.

AUDUSD Rallying On RBA & GDP

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