The results of the parliamentary elections in Australia almost returned the AUD/USD pair to the area of the 70th figure, but the growing general pessimism about the prospects of the world economy did not allow the buyers of Aussie to strengthen their success. As a result, the pair fell down again, testing the levels of multi-year lows at the moment.
The growth of anti-risk sentiment is due to many factors that resonate with each other, provoking panic among traders. The list of these factors is very impressive: the aggravation of the trade conflict between the US and China, a significant deterioration in relations between Washington and Tehran, vague prospects for Brexit and the growing popularity of right-wing political forces in the main EU countries on the eve of the elections to the European Parliament. The market clearly feels nervousness, which is spurred by loud statements of politicians and comments of many financial experts, who voice the apocalyptic scenarios for the near future.
The Australian currency is quite sensitive to changes in the external fundamental background. But in this case, the pressure on the currency is intensified by the position of the Reserve Bank of Australia, the head of which actually announced a decrease in the interest rate at the next meeting. This factor played a key role in the resumption of the southern trend, not allowing the bulls to return the price above the mark of 0.7000.
It is worth noting that the Australian Central Bank over the past six months maintained, if not optimistic, then rather restrained position regarding the prospects of the national economy. Contrary to the "dovish" expectations, members of the RBA did not follow the path of their colleagues from the RBNZ, who voiced soft rhetoric since the beginning of the year, and began to reduce the interest rate at the last meeting. After that, AUD/USD traders concluded that Australians will follow their example, given the slowing GDP growth of the country.
But the head of the Department Philip Lowe still bent his line and denied rumors about the upcoming easing of the parameters of monetary policy. This firmness of the head of the RBA supported the Australian dollar, which in pair with the US currency remained stable above the key support level of 0.7000. But after the elections to the Parliament of Australia (which took place last weekend), his rhetoric has softened dramatically. Whether it is a coincidence or not is an open question, but the fact remains. During today's speech, Lowe said that the June meeting will consider the issue of reducing the interest rate. According to him, low rates will support the labor market and contribute to the growth of inflation to the target level.
I would like to note that inflation and the labor market has recently shown a negative trend. It is likely that this factor was the "last straw" in the patience of the RBA, if we exclude the political factor of a possible change of power (by the way, the ruling party suddenly won the elections in Australia, which means the Prime Minister will retain his position). Thus, according to the latest data, the consumer price index in Australia suddenly fell to zero (on a monthly basis), while experts expected a decline of only 0.2%. In annual terms, the growth of the indicator slowed to 1.3%, although the overall forecast was at 1.5% (from 1.8% in the fourth quarter of last year). Core inflation rose only 0.2% during the first quarter (after seasonal adjustments) – this fact again disappointed market participants who expected the growth of the key indicator by 0.4%. On an annualized basis, baseline quarterly inflation fell to 1.4%, well below the minimum target value of the Australian regulator.
These figures were published at the end of April – and even then led to rumors of a reduction in the interest rate until the end of this year. Some of the experts even allowed the easing of monetary policy at the next meetings – that is, on May 7 or June 4. Today, Philip Lowe actually confirmed the forecasts of experts, "appointing" consideration of this issue for June. Disappointing data on the labor market only strengthened the confidence of traders that the members of the RBA will take this step in early summer. The unemployment rate has been rising for the third month – after a decline in February to 4.9%, in March it reached 5.1%, in April – 5.2%. The growth of the Australian economy also leaves much to be desired (0.8% in annual terms), primarily due to the decline in consumer spending.
In other words, the southern dynamics of the Australian is quite justified – the currency is under pressure from both internal and external fundamental background. In terms of technique, the AUD/USD pair is within the downward movement, as evidenced by the trend indicators on all "higher" timeframes (from H4 and above). The nearest support level is at 0.6790 (the lower line of the Bollinger Bands indicator on the monthly chart). The goal of a possible corrective pullback is 0.6940 (Tenkan-Sen line on the daily chart), if AUD/USD bulls overcome it, they will test the 70th figure again. However, given the fundamental picture, it will be difficult for bulls to find a reason for such a significant Northern breakthrough.
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