18.06.202008:23 Forex Analysis & Reviews: AUD / USD: A devastating report on the labor market

The Australian labor market was reported today to be in the "red zone", clearly demonstrating the effects of the coronavirus crisis. All the components in the data for May are terrible, as they turned out to be "anti-records on anti-records". Fortunately, traders are already prepared for such weak figures, so the aussie reacted minimally to the publication. In addition, the Australian Non farm report provided an excellent opportunity to buy positions at a better price, although the pullback at the AUD / USD quotes was approximately 50 pips.

Laying it all in detail, the unemployment rate in May jumped to 7.1%, higher than the forecasted growth of up to 6.9%. Such is already a long-term anti-record, since the last time that the indicator recorded such a high level was back in 1999 (in the late 90s, unemployment in Australia reached almost 9%). The decrease in the number of employees is about 229 thousand.

Although the indicator came out worse than the forecasted values (experts predicted a 100-thousandth reduction), there is still a positive trend because in April, the number of employees decreased by a record 607 thousand. In addition, traders should pay attention to the structure of this indicator, since the negative dynamics of employment growth was mainly due to a decrease in part-time employment which collapsed by almost 140 thousand. Full employment, on the other hand, has shown a less significant decline, decreasing by 89 thousand. This suggests that the decline in the labor market in May will not hit so much on the dynamics of wage growth, as regular positions offer a higher level of wages and a higher level of social security.

As mentioned above, the Australian dollar ignored the publications today. The AUD / USD pair started the trading day at 0.6884, and after the publication fell to the level of 0.6839. The bears were not able to reach the base of the 68th figure, not to mention even failing to breakout from the 67th price level. The reason for which is that the published figures reflected the peak values of the coronavirus crisis. Australian authorities introduced quarantine in late March to early April, gradually tightening restrictive measures until early May. The data that was published today only covered the period until the middle of the previous month, and Australia only began to emerge from the lockdown in mid-May. Thus, the next Australian Non farms should be much better in figures.

RBA chief, Philip Lowe, is also confident in the recovery of the Australian economy. According to his speech, the labor market did not receive such a strong blow relative to the regulator's earlier forecasts, so in the second half of the year, a V-shaped recovery of key indicators is expected. Other members of the Reserve Bank are also in agreement with him, virtually ruling out a further reduction in interest rates. They declared that they would maintain a wait and see attitude in this issue.

Such factors are what made traders ignore today's devastating report. However, they should be warned that if the data for June comes out in the same vein, the Australian will be under great pressure.

For now, the aussie has stood strong from the blow, maintaining its positive growth potential. In addition, the Australian dollar received support from the commodity market, as the cost of iron ore is still above $ 100 per ton. The positive effect of this fundamental factor is offset by the difficult relationship between Canberra and Beijing, as it so happened that Australia, in the midst of a pandemic, became one of the flagships of the anti-Chinese campaign. Australian authorities were one of those who called for an independent investigation on the spread of the coronavirus, and its proposal was supported by more than 120 countries. Unfortunately, China received it "with hostility", and Beijing accused Australia of "attacking China", after which the political conflict passed into the economic plane. China, in particular, increased duties on certain types of Australian goods, while refusing to import beef.

However, China cannot refuse to purchase Australian iron ore just as quickly. Last year, about 40% of Chinese imports of mineral raw materials came from Australia. To reduce its share, Chinese companies must invest more in the development of deposits in African countries, but such will take a very long time to materialize.

The escalation of Australian-Chinese political conflict continues to exert pressure on the aussie, which limits the growth potential of the AUD/USD pair to the 70th figure. In order for the quotes to reach above the level of 0.7000, Beijing and Canberra should at least sit at a negotiating table, but for now, China refuses to even take this step. Thus, from the current positions, open buy orders targeting the level of 0.6970, which is the upper line of the Bollinger Bands in the four-hour chart.