General analysis AUDUSD for 06.05.2022

Current Dynamics

Reserve Bank of Australia decided to increase the cash rate target by 25 basis points to 35 basis points. According to the Statement by Philip Lowe Governor of the Reserve Bank of Australia inflation this year is expected to be 6%, returning to a 3% level in 2024, but this might be a very optimistic projection.

According to the Statement, Board of Directors of the RBA decided that now is the right time to begin winding down the emergency monetary support, which was given to the Australian during the pandemic. This decision was made on the back of the highest inflation rate in 20 years which was 5.1% and a low unemployment rate of 4% with high vacancy rates. It is also worth noting that Lowe says Australia's economic growth outlook remains positive.

The employment market in Australia is very strong but this week there were two strikes of teachers and bus drivers. Teachers are demanding wage increases from 5 to 7.5%. Also according to the representative of the union more than 70% of teachers are considering changing their profession. Victorian bus drivers are pushing for better working conditions and wage increases, claiming that companies refuse to hand over wage subsidies to the state government. They are pushing for a 2.19% wage increase, which is well below inflation. The decline in citizens' purchasing power may soon have a negative impact on Retail Sales, which increased by 1.6% in March. However, it is worth remembering that Australia recently experienced two major floods.

At the same time the most significant contribution to inflation was made by higher education (6.3%), new housing (5.3%) and automobile fuel (11%). Thus, in March the number of construction permits decreased by 18.5%, and oil prices continue to grow against the background of OPEC Secretary General's statements about the impossibility of replacing Russian oil because of the lack of capacity.

The increase in teachers salaries will lead to an acceleration of inflation, the growth of energy prices may continue, and then the inflation rate may be much higher than 6%. Because of this, we should expect a significant tightening of monetary policy in the soon. However, it is worth remembering that RBA's simulation of a situation where the interest rate will be increased to 2% showed that the real estate market in Australia could fall by 15%.

The Services Activity Index for April was up from last month at 57.8 points.

Today at 14:30(GMT+2) US unemployment data for April, expected to fall to 3.5%

Support and resistance levels.

The AUD/USD currency pair dropped below the key Fibonacci level of 67.8. The current trend is downward. RSI oscillator has crossed the 50 level from the top to the bottom.

• Support levels: 0.7030, 0.6885.
• Resistance levels: 0.7265, 0.7175, 0.7120

Trading scenarios

• Short positions can be opened from the current level with a target of 0.7030 and a stop loss of 0.7150 Implementation period: 1-3 days
• Long positions may be opened above the level of 0.7175 with target 0.7265 and stop-loss 0.7120 Implementation period: 1-3 days