The Australian dollar received support from the Reserve Bank of Australia against the US currency today. The minutes of the last RBA meeting were published during Tuesday's Asian session, the rhetoric of which turned out to be quite optimistic. And although the document only reflected the results of the December meeting, the aussie reacted positively to the release. The AUD/USD pair moved away from local lows (0.7080) and settled a high at 0.7140 today. However, the aussie's growth must be treated with extreme caution, given the background of the issue.
Let me remind you that following the results of the last RBA meeting, many analysts of the largest financial conglomerates said that the Australian central bank is guaranteed to reduce the volume of the incentive program at the next meeting (which will be held in February 2022). Some of them even suggested that the RBA would abandon QE altogether if key macroeconomic indicators were released in the green zone in the next two months. It is noteworthy that just a week after the meeting, the "Australian Nonfarm" for November was published, which came out much better than expected. The Australian labor market showed the strongest growth (some components of the release updated the record high), reflecting the recovery of the national economy after a series of protracted lockdowns.
I repeat – the December meeting of the RBA took place even before the release of the November figures in the Australian labor market. At the time of the meeting, the members of the central bank were operating with data for October and September. The indicators of these months left much to be desired. For example, the unemployment rate in October rose to 5.2% (the worst since April of this year), and the growth rate of the number of employed collapsed into negative territory. With a forecast of growth up to 50,000, the indicator decreased by 46,000.
Nevertheless, the RBA remained optimistic about the recovery of key macroeconomic indicators. Judging by the minutes published today, the members of the central bank intend not to deviate from their plans to curtail QE. The central bank noted in a separate line that the country's economy demonstrates "a very steady pace of recovery after the outbreak of the Delta strain." Moreover, the main positive, according to the RBA, at the moment comes from the labor market, "where, among other things, there is a gradual increase in wages." Against this background, the central bank indicated that it is considering the possibility of starting to wind down the asset purchase program in February "with its full completion in May 2022."
Following the results of the December RBA meeting, the AUD/USD pair impulsively jumped by 150 points (to the level of 0.7185). However, bulls could not keep the positions they had won. As soon as the aussie began to approach the borders of the 72nd figure, the upward momentum faded, and the AUD/USD bears seized the initiative.
The same thing happened following the release of "Australian Nonfarm" in November. After a months-long period of depression, the labor market showed a great result. Thus, the unemployment rate in the country dropped sharply from 5.2% to 4.6%. The indicator of the increase in the number of employed in November completely updated the historical record. The overall indicator turned out to be better than forecasts, reaching 366,000 with a growth forecast of 200,000. This is a record rate of growth of the indicator in the entire history of observations. Moreover, the structure of this indicator suggests that the overall growth was due to the growth of both partial and full employment. The share of the working-age population increased to 66.1% (the best result since June).
Such an impressive result supported the Australian dollar – but, again, just for a few hours. The AUD/USD pair impulsively jumped to 0.7225 and almost immediately turned 180 degrees. Over the next two days, the aussie fell by more than 150 points.
In other words, the Australian currency only reacts reflexively to positive factors of a fundamental nature. AUD/USD bulls are not able to "keep the height": any more or less large-scale growth instantly attracts bears.
In my opinion, such price dynamics is explained by the RBA 's position regarding the prospects for tightening the parameters of monetary policy. RBA Governor Philip Lowe does not tire of repeating the thesis that the interest rate will not be raised over the next year. The central bank is not concerned about the growth of inflation in the country, so it is "ready to be patient," as stated in the minutes of the December meeting. RBA members stated that inflation in the country has increased, but at the same time "remains low in basic terms."
Speaking last week, Lowe clarified his position on the fate of the bet. He acknowledged that the possible lag of the RBA from other central banks of the world on the issue of raising rates "could negatively affect the rate of the Australian dollar." At the same time, Lowe said that he was ready to keep the rate at a low level, "if the relevant economic conditions require it."
This patient attitude of the RBA contrasts with that of the US central bank on this issue. Federal Reserve Chairman Jerome Powell is ready to raise rates next year, and admits the option of a double increase during 2022. Some of his colleagues also admit a more hawkish option, in which the rate will be increased three times over the next year.
All this suggests that the current growth of the AUD/USD pair is temporary. The RBA minutes allowed bulls to develop a correction, but in this case it is impossible to speak of a trend reversal. Therefore, the upward surge can be used as an excuse to open short positions. The first target for the downward movement is 0.7080 (local 2-week low). The main target is the level of 0.7030 - this is the lower line of the Bollinger Bands indicator on the D1 timeframe.