26.02.202009:16 AUD/USD. Aussie crashes to 11-year lows, but the bearish feast is not complete

The Australian dollar is breaking records, or rather, anti-records. The Australian dollar fell to 11-year lows against the greenback, and is now testing the 65th figure. This price dynamics is primarily due to the panic around the spread of coronavirus in China. The second reason, which logically corresponds to the first, is the prospects for a further reduction in the RBA interest rate. The AUD/USD pair has broken through multi-year support levels, so almost all currency strategists have no doubt that the aussie will settle within the 65th figure. The only level of support that has not yet been overcome is the lower line of the Bollinger Bands indicator on the monthly chart (0.6550 mark). If sellers pass this price outpost, they will easily pull down the pair to the bottom of the 65th figure.

Exchange Rates 26.02.2020 analysis

The catalyst for the downward dynamics of AUD/USD was recently published data on the growth of the Australian labor market. The release, by and large, was not so bad - the growth rate of employees exceeded the forecast values, moreover, due to an increase in full employment (part-time employment, on the contrary, decreased significantly). But the market concluded that the "glass is half empty", focusing on the unemployment rate, which really came out slightly worse than expected (5.3% instead of the forecasted level of 5.2%).

The aussie began to actively lose its position as a result of this publication. The fact is that the members of the Reserve Bank of Australia at their last meeting again focused on labor market indicators: they announced that they would closely monitor the dynamics of the relevant indicators, including in the context of determining the future prospects of monetary policy. Therefore, the February release reinforced concerns that the RBA will resort to another round of rate cuts this spring.

It is worth noting that such rumors in the market have been exaggerated since the end of last year, especially after the publication of key data on the country's economic growth during the third quarter. According to this release, GDP fell to 0.4% (compared with the second quarter), while the general forecast was at 0.5%. In annual terms, the country's economy slowed to 1.7%. Australia's GDP has been declining since the middle of last year, largely due to lower consumer spending. For example, expenses increased by 0.1% in the third quarter - this is the weakest result since 2008.

There are no more recent data on the growth of the Australian economy, but preliminary forecasts leave much to be desired. Last week, the head of the RBA spoke in Melbourne, voicing the regulator's expectations. According to him, a severe drought will reduce the country's GDP growth by a quarter percentage point this year, while past fires will reduce expansion by 0.2% in the last quarter of last year.

Natural disasters still put downward pressure on the aussie. According to recent data, the economic damage from forest fires that nearly devastated the east coast of the continent exceeded a record $4.5 billion. According to analysts at Moody's Analytics, fires undermined Australia's already weak consumer confidence and also damaged the economy due to significant air pollution: in particular, industries such as agriculture and tourism are directly damaged. The country suffered similar damage only ten years ago, during the major forest fires of 2009, called "Black Saturday bushfires". Obviously, all the above circumstances will soon be reflected in Australia's GDP growth indicators (both for the fourth quarter of last year and for the first quarter of this year).

Such prospects reinforce rumors that on March 3 (that is, next Tuesday), the Australian regulator will nevertheless resort to easing monetary policy. The minutes of the February meeting showed that the RBA members are in "standby mode": on the one hand, they are ready to maintain a wait-and-see attitude, on the other hand, they are ready to respond to external challenges.

Exchange Rates 26.02.2020 analysis

Furthermore, one should not forget about the coronavirus factor. China is Australia's largest trading partner, so RBA members will not be able to ignore the latest developments. In particular, due to the quarantine regime in many regions of China, new construction was suspended - this fact will undoubtedly affect the Australian export sector. According to some analysts, the impact of the virus on the Chinese economy will be significant, but short-lived: the first quarter of the current year, and possibly the second, will sag. But against the backdrop of a slowdown in the Australian economy (a negative trend was recorded last year), RBA members can already take preventive responses at the March meeting.

Thus, the AUD/USD pair did not exhaust the potential for further decline, despite a significant decline in prices to 11-year lows. Strengthening rumors about easing monetary policy at the March meeting will put downward pressure on the aussie. The closest target of the downward movement is the 0.6550 mark (the lower line of the Bollinger Bands indicator on the monthly chart). The main price outpost is located lower - at the "round" level of 0.6500.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Viele Grüße,
Analytiker: Irina Manzenko
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