Forex Market: AUD/USD eases from three-week highs as metropolitan Melbourne is placed under lockdown, RBA keeps policy unchanged

AUD/USD eased from highs not seen in over three weeks on Tuesday, after Victorian Premier Daniel Andrews announced a lockdown of metropolitan Melbourne to curb surging new coronavirus infections in the state, while the Reserve Bank of Australia kept its cash rate intact at a record low level of 0.25% at its policy meeting earlier today, in line with expectations.

The central bank reiterated that Australia’s economy was facing the most severe economic contraction since the 1930s, while the nature and speed of the recovery still remained highly uncertain. Policy makers will maintain the accommodative approach for as long as it is necessary and will not raise borrowing costs until progress towards full employment and inflation rate within the 2%-3% objective is observed, the RBA said.

Australia’s second-most populous state reported the sharpest daily surge in new COVID-19 infections – 191, since the pandemic began, which led to the imposition of six weeks of stay-at-home restrictions and a lockdown of metropolitan Melbourne. This means residents of metropolitan Melbourne and the shire of Mitchell will be allowed to leave their homes only for food shopping, caregiving, exercise, study or work. Additionally, the border with New South Wales was closed.

“The lockdown of large swathes of suburban Melbourne and the closure of the state border are a setback to hopes for a quicker re-opening of Australia’s second largest economy,” Ryan Felsman, a senior economist at CommSec, said.

“The virus hit to tourism, international education and migration has already been pronounced, and the impact on consumer spending is evident.”

As of 7:08 GMT on Tuesday AUD/USD was retreating 0.41% to trade at 0.6945, after touching an intraday high of 0.6998 during early Asian session, or a level not seen since June 11th (0.7005). The major pair has trimmed gains for the current week, now being up 0.04%, after advancing 1.10% in the prior week.

In terms of economic calendar, at 13:00 GMT today Federal Reserve President for Atlanta Raphael Bostic is to participate in a conference co-hosted by the Chattanooga Chamber, the Tennessee Business Roundtable, the Nashville Chamber and the Knoxville Chamber, while at 17:00 GMT Fed Vice Chair Randal Quarles is scheduled to speak on financial stability at the Exchequer Club Luncheon via webcast.

Additionally, a report by the US Bureau of Labor Statistics at 14:00 GMT may show the number of job openings in the country decreased to 4.850 million in May, according to market expectations, from 5.046 million in April. The latter has been the lowest level since December 2014 due to the coronavirus crisis.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled 9.2 basis points (0.092%) as of 6:15 GMT on Tuesday, or unchanged compared to July 6th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6964
R1 – 0.6998
R2 – 0.7022
R3 – 0.7056
R4 – 0.7091

S1 – 0.6939
S2 – 0.6905
S3 – 0.6881
S4 – 0.6857