AUDUSD is seriously testing $0.670 resistance level. It did pop through this level in the past week for a new decade low of $0.667 as the fallout from the coronavirus starts to be priced into EM and China proxy currencies.
The economic impacts for the coronavirus will be laid bare over the coming months. From an AUDUSD perspective it is a major concern. It is a clear negative in the short term and the longer China is in lockdown and the more it spreads the AUD’s proxy nature to China will be the focus. AUDUSD specifically has a further downward pressure with flows shifting to safe heavens and specifically the USD.
However, before we go any further there are some caveats in FX in general currently.
1. G10 FX volatility is still very low, even with the risk of coronavirus, which is strange.
2. FX volatility is lagging rates volatility, something that almost never happens. The reason for this dichotomy is the effect synchronised global policy easing is distorting normal trade.
The AUDUSD, on a long-term trend basis, is still very much in a downtrend channel with no meaningful changes to this technical coming in the foreseeable future. However, that trend, particularly in the past 6 months, has been based on domestic factors not global health or growth issues. It has really been down to the expectation of further rate cuts from the RBA in 2020 due to sluggish set ups in domestic data.
What might test this assumption is at the last RBA board meeting and in subsequent speeches since the Board is slightly more ‘glass after full’ than the market is pricing.
There is a growing chance it could hold off cutting rates (economists are currently estimating there will be 2 in 2020) for the foreseeable future as it looks evaluate the impact its 3 cuts had from last year.
If the signs are it will hold off the AUD is in for some positive repricing despite the risk from the coronavirus.
Part of the RBA’s slightly more positive view is due to a recent recovery in the jobs market making this week’s employment data all the more interesting from a trading perspective.
Thursday’s release sees consensus estimates for employment growth at 31,000 with the unemployment rate tipped to edge up slightly to 5.2% from 5.1%.
The data drop will do one of two things:
If the unemployment rate disappoints it will see the AUDUSD testing the February 7 decade low. If a break is confirmed, AUDUSD is likely to chasie a new support level of $0.664.
If the data is inline or slightly better AUDUSD could actually pop and look to test $0.68 even $0.685 and quickly, as it may confirm the RBA’s view and see some of the 2020 cuts that are priced in come out of the pair.
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