Tram in Melbourne city center. Image source: Abdul Razak Latif © 123RF.com
Earlier today, the Reserve Bank of Australia released its comprehensive monetary policy minutes from its last August 4th meeting. The overall tone of the statement was mostly pessimistic in regards to the future prospects for sustained recovery.
As per usual, members of the Governing Board began by evaluating the international economic conditions. They expressed concerns that:
"the global economy was likely to take longer to recover than initially thought and that the damage to labour markets could linger."
This is concerning news for the employment conditions in Australia because the unemployment rate has been rising consistently over the last several months.
Australia Unemployment Rate. Image source: TradingEconomics.com
The prolongation of the global coronavirus fallout would continue to exert pressure on the strained labour market in Australia, likely leading to future spikes in unemployment.
As regards the domestic economic prospects, members of the Board noted that the economic crunch in the second quarter has been smaller than initially feared due to early easing of lockdown restrictions, in addition to the timely and effective implementation of monetary and fiscal policy stimuli.
"Members agreed that the lengthening and tightening of restrictions in Melbourne, and the extension of restrictions to regional Victoria, was a setback to the recovery and would weigh on overall domestic activity in the September quarter. In addition to the direct effects of the lockdown, there were likely to be negative effects on the confidence of households and businesses."
The reintroduction of stricter restrictions in Melbourne and other parts of the country, following a resurgence of COVID-19 cases under the threat of a bigger second wave, would likely lead to newly subdued demand in Australia.
This is particularly worrisome given that the country's jolted price stability is still struggling to recuperate from the initial downturn, with inflation edging closer to structural deflation.
Australia Quarterly Inflation Rate. Image source: TradingEconomics.com
All of these trends could jeopardise the strong bullish run of the Australian dollar. As can be seen on the hourly chart below, the AUDUSD pair is nearing the minor resistance level at 0.72400, whose prominence was established during the development of the preceding Double Top pattern.
The price action could rebound from the resistance, leading to the creation of a new bearish correction, possibly being the first stage in the development of a bigger downtrend.
These assertions are confirmed by the MACD indicator, which is currently signifying the exhaustion of the underlying bullish momentum.
AUDUSD 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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