Aussie Under Fire
28.01.2020, 18:13

Aussie Under Fire

The Australian Dollar fell under pressure this year due to the slumping exports and the devastating wild fires in 2019. The AUD/USD slid as much as 4% this year, trading at 0,6740 on Jan. 28, which was a three-month low.

The negative macroeconomic factors will probably have a lasting effect on the local economy while an outbreak of a new virus in China will hurt Australian trade. The country is heavily dependent on Chinese imports, particularly on coal, metals and liquid natural gas. Consumption reduction in China, along with forced production suspension in some provinces and restriction in transportation, could have a severe negative impact on the Australian economy. China was responsible for 32.6% of national exports in 2018/2019 financial year, up from 29.4% a year before, according to the data released by the Department of Foreign Affairs and Trade of Australia.

The afflicted economy has steered the Reserve bank of Australia (RBA) to maintain its loose monetary policy. Risks of further deterioration of economic performance could prompt the monetary policymaker to lower its cash rate in the coming months. The oldest banking institution in Australia, the WestPac Banking Corporation, suggests the rate cut is likely to be announced by RBA this April. "We believe that the current positive signals around the labour market will prove to be unsustainable and we continue to expect that the unemployment rate will drift higher through 2020, reaching 5.5% by mid-year", Westpac's Chief Economist Bill Evans explains in a Weekly economic report. "We also expect that the data associated with the core issues highlighted by the Board - wages growth; inflation; consumer spending - will signal that further monetary stimulus will eventually be required," he added.

The next RBA meeting on Feb. 4, however, could end with a continuous dovish monetary policy statement, aimed to further easing of the Aussie. The current EBA cash rate is at 0.75% and was lowered three times last year from 1.5%. The Reserve Bank may turn to quantitative easing by buying government bonds only if it runs out of levers to boost the economy and will lower the official interest rate to 0.25%, the governor of RBA, Philip Lowe, said last November.

The AUD/USD could slide further to 2019 lows of 0.6670, if we take RBA's dovish statement into consideration. The scenario could come into effect if AUD/USD will manage to consolidate under the strong support level of 0.6750. The alternative technical scenario suggests possible correction to 0.6800-0.6850 that, however, may not reverse the long-lasting downward trend for the Australian Dollar.


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