Daily Market Recap – AUDUSD Rebounds but the trend remains bearish

The economic climate in Australia is getting worse and worse, as the August PMI released on Monday proved. Not surprisingly since the lockdown in Sydney has been extended to the end of September.

The Australian dollar remains under pressure as the restraint measures have the market concerned that the potential economic effects could cause the Reserve Bank of Australia (RBA) to delay its plan to reduce asset purchases. Although it did not do so at the last meeting in early August, this option was discussed by board members. Given the evolution of the pandemic, the discussion could intensify at the next meeting in early September.

Labour market conditions improved somewhat, as shown in the labor market report for July last week. The unemployment rate fell much more sharply than expected to 4.6 percent. However, this was primarily due to a drop in the participation rate, a few new jobs were created. Moreover, the labor market report is only one piece of the RBA's puzzle, albeit an important one, when it comes to monetary policy.

The RBA will be analyzed very carefully the Q2 GDP data due out shortly before the RBA's September meeting, even though the lockdown measures did not really take effect until the third quarter.

The generally low-risk sentiment in the market is not exactly supportive of the AUD either while the price of iron ore has also been adding pressure on the Aussie. It has been under pressure for the past few weeks. The country's main export commodity has suffered a noticeable collapse in price, which is also due to China's announcement to cut steel production.

The strong rebound of the Australian dollar earlier this week has allowed it to break out of its oversold territory. Prices could return to the former support turned resistance at 0.7316 or even beyond the last high at 0.7427 in the very near term.

(Chart Source: Tradingview 24.08.2021)

However, despite this short-term recovery, the trend remains bearish below this last threshold. The Aussie is in fact moving below the 200-period moving average and the 20-period moving average. We will be watching for the formation of candlesticks approaching these levels which could restart the negative momentum.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.