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A Short-Lived Rise in the Australian Dollar

A Short-Lived Rise in the Australian Dollar

The Australian dollar moved up slightly at the start of the day, holding itself above the mid-0.6700s. This was influenced by the expectation of the Reserve Bank of Australia (RBA) pricing in another rate cut in February being reduced. As well as this there was an uptick in the Consumer Price Index (CPI), which came out above expectations at 1.8%, compared to the market expectation of 1.7%.

The CPI is one of the ways in which the RBA measures inflation. This is represented by the price paid by consumers for a shopping basket of goods and services.

The RBA has already cut interest rates 3 times in 2019, in an effort to combat a slowing Australian economy and to stimulate growth. While the RBA’s next meeting to decide the CPI is expected to be in February, it is possible that they will take some time to see the impact of its rate cuts before deciding to whether or not to reduce them again.

However, this initial impact was short lived, as it fell again following the opening of the European markets. As fears of the coronavirus in China increases, European traders scrambled to sell the AUD, due to Australia’s close relation and reliance on the Chinese market.

The latest news on the coronavirus sees almost 6000 infected in mainland China, a sizeable increase from the previous day of 4500. This means that it has now overtaken the 2002-2003 SARS epidemic within the country, which had 5327 confirmed cases. However, it still a much less deadly virus by far, with a death rate of only 2.2%, compared to the 9.6% of SARS.

While the coronavirus has been much better contained, it is still expected to escalate until a cure has been found. Likewise, the AUD can also be expected to continue to trend downward.

Our Head of FX and Metals, Anish Lal had this to say about the AUD’s daily trend:

“The chart shows price action from the day, on a 5-minute time frame. The initial news release caused the markets to reach a daily high before declining back to sub 0.6760. Bears continue to take control of this trade with a view of taking the market below the 67-cent mark, where a lot of technical support rests. The coronavirus is definitely a cause for concern on the Australian Dollar and a rampant US Dollar is not helping a bull case for the start of 2020.”

For more information, check out Anish’s analysis for the day on our YouTube channel: