The bears of the AUD / USD pair continued their victorious march: the downward trend has continued this week, and the price fell to the area of multi-month lows, trading at the base of the 67th figure. On one hand, there are no prerequisites for changing the trend, as almost all fundamental factors play against the Australian currency. However, on the other hand, short positions on the pair do not look so reliable anymore. For the aussie, the 67th figure is a kind of a price outpost. Below this target (with subsequent long-term consolidation), the price fell for the last time during the 2008 crisis, which was more than 10 years ago. Is it safe to say that the current situation in the currency market contributes to this price decline? This question is by no means a rhetorical one, given the fact that the US currency is also quite vulnerable against the background of recent macroeconomic and political events. Therefore, you should not rush to sell the AUD / USD yet, despite all the prerequisites for further price reduction.
It is worth noting that the pair is showing a downward trend for two main reasons.First, the Australian dollar is reacting sharply to the spread of the Chinese coronavirus. According to many experts, the consequences of the epidemic will certainly affect the Chinese economy, primarily in areas such as tourism, passenger transportation, civil aviation, retail sales, and construction. This will be followed by a "Domino effect", which will eventually affect the overall growth rate of China's GDP, especially if the situation cannot be taken under control for a long time. China is Australia's main trading partner, so these prospects put significant pressure on the aussie. Vice versa, any hints of stabilization will allow the AUD / USD bulls to suspend the downward momentum.
For example, today, during the Asian session, the level of business activity in the manufacturing sector of China (PMI) was published. Contrary to pessimistic forecasts, the January indicator remained above the key 50-point mark. The index of business activity in the services sector even exceeded expectations by having an increase to 54.1 points, against the forecast of growth to 53.0. After this release, the AUD / USD pair rebounded from the annual low of 0.6701, rising to the middle of the 67th figure. This suggests that the "coronavirus factor" is rather an unreliable ally of the aussie bears, since the impact of the virus can be short-term, and the Chinese macro indicators in the above-mentioned areas of the economy can only demonstrate a temporary decline . It all depends on how the situation will develop in the future,
The second factor of pressure on the AUD / USD pair is the RBA. Next Tuesday, February 4, the first meeting of the Australian regulator will be held. The probability of a rate cut at this meeting is almost 40%, although before the release of December data on the Australian labor market, this probability has reached 60%.
The release came out better than expected, but in my opinion, there are no reasons for optimism there. The positive dynamics of employment growth in December was mainly due to the growth of part-time employment, which jumped by 29.3 thousand. Full employment, on the contrary, showed a negative trend, falling by 0.3 K, which may negatively affect inflation processes, since temporary part-time jobs imply lower salaries. Therefore, the Reserve Bank of Australia can interpret the published figures in its own way, expressing concern about the dynamics of the labor market growth. As for the unemployment rate (which was just below the forecast level of 5.1%), it also does not "inspire" the AUD / USD bulls, since at the beginning of last year, unemployment was at the level of 5%, fell to 4.9% in February, and then stabilized in the area of 5.2-5. 3% All these results were quite far from the 4.5% target of the Australian regulator.
Things are somewhat better with inflation. The consumer price index for the 4th quarter came out slightly better than expected, both on quarterly and year-on-year basis. In quarterly terms, the indicator grew at the strongest pace since the third quarter of 2016 (+ 0.7%). Meanwhile, in annual terms, the indicator grew at the strongest pace since the 4th quarter of 2018 (+ 1.7%). Experts predicted growth of 0.6% and 1.6%, respectively. At the same time, the producer price index, which is an early signal of changes in inflation trends, came out today at a forecasted level. Indicators slowed slightly in the fourth quarter, but this decline is minimal.
Thus, the Reserve Bank of Australia at its next meeting may take a wait-and-see position, but at the same time, may voice "dovish" rhetoric, up to the announcement of an interest rate cut in the first half of the year . But since the probability of a rate cut at the February meeting is 40%, the fact of maintaining the status quo will provide significant support for the Australian currency. The AUD / USD pair can show corrective growth, especially from the levels of multi-month lows. Until the RBA meeting, the pair will continue to be under pressure from the coronavirus. The number of cases has already come close to the psychologically important mark of 10 thousand, while more than 200 people have died from concomitant pneumonia. The peak of the incidence is still ahead, so it is too early to talk about a reversal of the AUD / USD trend,
Such a system of "checks and balances" will keep the aussie in the 100-point range of 0.6670-0.6770 (last year's low and Tenkan-sen line on the daily chart), until the situation with the spread of the ill-fated virus stabilizes
