02.07.202110:35 Forex Analysis & Reviews: AUD/USD. Nonfarm data and RBA's July meeting are expected

The AUD/USD pair has been showing a downward trend for five consecutive weeks. Over the week, the Australian dollar almost continuously declines, eventually updating the 8-month price lows. Rare and insignificant corrections allowed traders to go into sales again, strengthening the downward impulse. As a result, the AUD/USD pair reached the level of 0.7455. The last time the AUD was in this price area was at the beginning of December 2020. It should be noted that the future prospects of this instrument depend on two factors – first, Nonfarm data, and second, Reserve Bank of Australia's July meeting, whose results will be announced next Tuesday.

On another note, American trading floors will be closed on Monday, July 5 as the United States will celebrate Independence Day. As for the following day, the RBA will announce its verdict on the prospects for monetary policy during the Asian session. For AUD/USD traders, this means that the pair may show increased volatility in the near future.

It can be recalled that the Australian dollar quite predictably worked out the upward targets at the end of June, testing the level of 0.76 and reaching the local high of 0.7620. The reasons for such a price movement were the speech of Jerome Powell in Congress (where the Fed Chairman voiced quite "dovish" remarks) and the publication of Australian labor market data. However, the dollar bulls took over again this week. The growth of the RFE inflation index (which is especially closely monitored by the Fed members), as well as the "hawkish" statements of some Fed representatives, particularly Barkin returned confidence to the supporters of a strong US dollar. They only need one thing to organize the next dollar rally. If today's Nonfarm comes out in the "green zone", the US dollar will strengthen its positions throughout the market – including in a pair with the Australian dollar, which may decline to the base of the 74th mark.

According to forecast data, the US unemployment rate in June is expected to decline to 5.6%, while on the contrary, the number of people employed in the Non-agricultural sector should increase by 755 thousand. This is a fairly strong result: the last time (and only one this year) the indicator exceeded the 700-thousand mark was in March of this year. The remaining components should also show noticeable growth: a 550 thousandth increase in jobs is expected in the private sector and a 30 thousandth increase in the manufacturing sector. Salaries should also be pleasing. According to forecasts, the salary level should increase to 0.6% on a monthly basis (from the May value of 0.5%), and accelerate to 3.7% in annual terms.

If the above indicators come out at least at the forecast level, the US dollar will receive significant support throughout the market, as rumors will continue that the Fed will announce the withdrawal of QE at the next July meeting. If the release comes out in the "green zone", that is, better than expected, then the dollar bulls will organize a more significant rally, especially before a long weekend. However, the current situation has a downside: inflated expectations often fail investors, causing the opposite reaction. In this case, we can say that the US dollar has driven itself into a trap, raising the bar of macroeconomic expectations. On the other hand, Nonfarm data will either significantly strengthen the position of the US dollar or allow traders of the main dollar pairs to organize a correction. For this reason, it is quite risky to open trading positions before the publication of key data, given the high rates that are at stake.

If we talk directly about the prospects for the Australian dollar it should be noted that the July RBA meeting will not be a check-through of the previous ones. In July, the Reserve Bank will consider whether to keep the yield on 3-year bonds due in April 2024 as a target or switch to bonds with an expiration date of November 24. Most importantly, the RBA will consider the issue of further purchases of bonds. Before this meeting, each macroeconomic report was targeted at AUD/USD pair. According to the latest data, Australia's unemployment rate sharply declined to 5.1%, although it should have remained at around 5.5%. This indicator has been showing a downward trend for the seventh month in a row. The indicator of growth in the number of employed in May also turned out to be better than forecasted, coming out at around 115 thousand (against the forecast of growth by 30 thousand). Moreover, the structure of this indicator suggests that overall growth was driven by full employment.

On another note, we have the situation with the coronavirus and the weak growth of Australian inflation. It became known this week that the Australian authorities introduced a strict two-week quarantine in seven cities (including Sydney), as well as in the surrounding areas for the first time since the beginning of last year. The fact is that an Indian delta strain was discovered in the country, which is considered more infectious and dangerous and will provoke an increase in the incidence of COVID-19.

There is also a negative trend for inflation data: Australia's consumer price index has been consistently falling over the past three quarters. The CPI came out at the level of 0.6% with the forecast of growth to 0.9% during this year's first quarter. For comparison, it can be noted that the index was at the level of 1.6% in the third quarter of last year.

Given the deteriorating epidemiological situation in the country, as well as the weak growth of inflation indicators, it can be assumed that the Australian regulator will take a wait-and-see position at the July meeting again. Thus, the Reserve Bank will put significant pressure on the Australian dollar.

From the technical point of view, the pair on the daily chart is located between the middle and lower lines of the Bollinger Bands indicator, as well as below all the lines of the Ichimoku indicator, which indicates the priority of the downward movement. The first support level is the level of 0.7450 – this is the lower line of the Bollinger Bands on the daily chart and the upper border of the Kumo cloud on the weekly chart. The downward target is the level of 0.7400 – the upper limit of the Kumo cloud on the monthly chart, which coincides with the Tenkan-sen line.