AUD/JPY – Australian Services Sector Contracted For The First Time In 11 Months

#OPINIONLEADER# #Signal#

 JUL 26, 2021

• Business activities in Australia slowed down
• Anti-lockdown protest in Sydney may trigger more COVID cases
• Potential downside if AUD/JPY breaks 80 handle

Chart 1: AUD/JPY D1 chart

The IHS Markit reported last Friday that business activities in Australia slowed in July. The services sector slipped into contraction for the first time in 11 months. This was mainly driven by the renewed COVID restrictions across parts of Australia as a result of the spread of the Delta variant which affected demand and output. As for the manufacturing sector, although it is still expanding, manufacturers are still reporting supply constraint to be the main issue for the slowdown in activities.

To make matter worse, thousands of people took part in an anti-lockdown protests over the weekend in Sydney. As a result, officials are worried that this incident may lead to a spike in COVID cases. If the worse were to happen, an extension to the lockdown restriction may be required.

The recent spike in COVID cases caused by the Delta variant has weakened AUD/JPY, allowing it to test the 80 handle. If little progress is made in the containment of the virus, leading to an extension of lockdown restrictions in Australia, we may see AUD/JPY breaking below the 80 handle for the first time in this year.

Trade Setup for AUD/JPY (D1)

Sell Stop at 79.50

Upcoming major news that may impact price movement of AUD/JPY

27 July – Bank of Japan Governor Kuroda speaking at 1530 (GMT+8)

27 July – Reserve Bank of Australia Deputy Governor Debelle speaking at 2035 (GMT+8)

28 July – Australian CPI q/q data release at 0930 (GMT+8)

29 July – Federal Reserve monetary policy meeting at 0200 (GMT+8)

29 July – Federal Reserve press conference at 0230 (GMT+8)