The main outsider in the Asian session was the Australian dollar, which, together with its American namesake, collapsed more than 100 points in a few hours as it heads for the main psychologically important support level of 0.70. It is noteworthy that Ozzy actually ignored the meeting of the Reserve Bank of Australia and even grew a little after it. However, it could not stand the dovish mood of Philip Lowe, who did not rule out a reduction in interest rates in the foreseeable future. The flat was replaced by a southern impulse that could "grow" into a southern trend, especially if the bears push the above level of support.
It should be noted that the sharp decline in the Australian is in particular because of the "surprise factor". After all, just a day ago, the RBA summed up the first meeting this year and the voiced theses did not surprise traders. The regulator left the key interest rate unchanged at a record low one-and-a-half percent level and also reduced economic growth forecasts to 3% from the previous forecast of 3.5%. In general, this result is widely expected. Let me remind you that at its November meeting, the Australian regulator predicted economic growth by 3.5% in 2018, while the real numbers were significantly lower - 2.8%. Therefore, many experts did not doubt that the RBA will revise the forecast for 2019 in the direction of deterioration. Moreover, some analysts warned that the Central Bank would rather substantially revise its position, however, these concerns were not justified. Yet, the Australian regulator focused on a number of other negative factors.
First, it is a slowdown in inflation and a decline in retail sales. Thus, the consumer price index in annual terms in the fourth quarter of last year came out at 1.8% with a forecast of 1.7%, continuing the trend of its decline for the second quarter in a row. The level of retail sales fell to 14-month lows, coming out in December at around 0.4%. Trends in the real estate market are also disturbing: housing has fallen in price in almost all major Australian cities (especially in Sydney and Melbourne). Prices have been falling for 13 of the last 15 months and over the past three months, the rate of decline has accelerated significantly. Since the peak recorded in the fall of 2017, the real estate in Australia has fallen by more than six percent.
At first glance, data on the labor market also did not impress the members of the Australian regulator. The fact is that the growth in employment in December was entirely due to part-time employment. But on the contrary, full employment declined by three thousand, continuing the negative trend. This factor adversely affects the dynamics of wage growth since full-time positions offer higher wages.
Summing up all the above factors, the Reserve Bank lowered the forecast for economic growth but did not talk about possible mitigation of monetary policy conditions. But a day after the meeting, the head of the Central Bank, Philip Lowe, did not rule out this scenario. He acknowledged the heightening of both external and internal risks. The trade war between China and the United States could flare up with a new force in the spring, pulling the world economy and the commodity market. Ascertaining this fact, Law stated that the regulator can react to external circumstances accordingly and the option of lowering the interest rate cannot be ruled out. It is worth noting here that earlier in the text of the accompanying statement of the RBA, there was a phrase that "the next action regarding the interest rate will most likely be upward. Now the reverse option is not excluded.
Given the current fundamental picture, short positions in AUD/USD pair looks quite justified. However, caution should be observed at the base of the 70th figure. As a rule, this level is given to bears hard, therefore, a corrective pullback is possible from this target. The behavior of the American dollar also speaks in favor of the southern Ozzy movement. Contrary to expectations, Donald Trump did not exert downward pressure on the national currency. He did not threaten the state of emergency, although he hinted at the high probability of a new shutdown, at the same time caused the anxiety of traders about the negotiations between the US and China. As a result, the US dollar index jumped to the border of 96 points, reflecting the demand for the US currency.
In technical terms, the first level of support is located at around 0.7090 on the bottom line of the Bollinger Bands indicator on the daily chart. However, in my opinion, the strongest level in this context is lower, at around 0.70. If the bears break through and consolidate within the 69th figure, we can talk about the resumption of the southern trend for the pair.
