The AUD is currently on the radar of a few account managers at BlackBull Markets. Being based in New Zealand, our closest neighbour's currency is a reasonably popular instrument to follow. News affecting the AUD will typically circulate the office quickly.
The ever-present influence on global markets, Covid lockdowns, are once again affecting Australian business and everyday life. New South Wales, the country's most populated region, is currently under lockdown to curb the spread of the Delta variant. Australian Prime Minister Scott Morrison recently extended the length of the lockdown for another week. Reports are that authorities are struggling to contain the far more virulent strain, and stricter and lengthier lockdown measures could soon be enacted.
From a technical perspective, on the daily chart, an interesting situation is developing.
Let's look at the Fib retracement that the pair has followed since its high in February 2021.
The recent downwards trend appears to have slowed on the Daily chart but is still definitely drawing down. A brief period of consolidation formed in between the 38.2% and 61.8% Fib level. The pair is trading well below the 50.0% level and is much closer to the latter than the former.
The general market sentiment is that the AUD is still a short. At least this was the call when the AUD was closer to $0.80 per dollar. The 61.8% Fib level is the next target for the AUD bears if the short sentiment holds today. At this level, the AUD would be back in a territory below 0.73800, representing a six-month low for the AUD.
The AUDUSD enjoyed a good deal of 2020 in the zone between 61.8% and 100%. If the pair were to cross the 61.8%, it could be some time before we see some price action outside this boundary.
The ASX 200 was an anomaly over Thursday Asian session. It was one of the few major indices that closed higher than it opened. Since this time, stocks have sold off in Europe and the US. The sell-off was particularly heavy in Europe, with the FTSE down by 1.68%, The CAC down by 2.01%, and the DAX down by 1.73%. As it stands, ASX200 futures are trading down, indicating that the Australian index will open on Friday trading approximately 40 points down or 0.67%.
Australia's Interest rate Decision-day is this Thursday, 6 April. What will the RBA do with the rate, you ask? The consensus is that the rate will remain at 0.1%.
Inflation in Aussie is trending upwards, recovering from 2020 lockdowns, but was sitting at sub-1% last time I checked. The interest rate will most certainly not increase with inflation so low and lockdowns ongoing (Brisbane just completed a snap three-day lockdown last week).
RBA governor Philip Lowe has previously noted that 0.25% was the lower bound with which the bank was comfortable and thought effective. But unprecedented times called for unprecedented measures, and here we are, at 0.1%. In the upcoming announcement, could Mr. Lowe again revise the bank's position on what is an effective rate, and scramble to lower the rate again? Is there any point in going to 0.075% or lower?
Rather than touch the interest rate, my best guess is that the RBA will increase the spending for asset purchases to AU$300 billion, up from the current AU$200 billion.
As we move closer to the RBA's interest rate decision, a question I have is whether the market has priced in a potential increase in the RBA quantitative easing budget?
Let us take a look at some AUD pairs and the movements over the past few months for good measure.
The AUD has weakened against the USD over the past few months. Some significant bearish candles occurred in late February to middle-March, leading into a price consolation in the range US$0.760. The big bearish tail that was rejected on April 1 possibly indicates there is some selling pressure lying dormant. The Interest rate announcement on Thursday might be a catalyst to provoke the AUD sellers again.
The AUD has strengthened against the EUR all year. In March, indecision was rife in the pair, with bullish EUR sentiment testing higher prices against the AUD but not finding much support. Instead, the AUD claimed ground incrementally until late March, where some gains were erased with a reversal. By the end of last week’s trading, bullish EUR sentiment built some momentum but pushed too hard by the 31st. The AUD settled at 1.54425 per EUR after pulling back a touch with a nicely balanced candle last week.
The Australian Dollar has seen a resurgence in recent days, following its massive drop mid March. At its lowest, the Aussie had traded at 0.5749 against the USD, but has steadily been climbing back up, and is now at 0.6482 and continuing to climb. Moving ahead, AUD/USD has a strong support at 0.6439, which gives further credence for it to keep rising.
Likewise, the New Zealand Dollar has also made a comeback, although not to the same level. The NZD/USD pair is currently trading at 0.6039, lower than its neighbour. This is most likely due to the difference in the severity of the lockdown between the two countries. For the past month, New Zealand has been in Level 4 of its COVID-19 alert phase, which meant that the entire country was under lockdown. Of course, this has meant that the economy has been under severe strain. While New Zealand has now moved back to Level 3 as of today, with over 400,000 workers returning to their jobs. That's almost 10% of the population, which will undoubtedly give a boost to the Kiwi Dollar, but many businesses still remain closed.
On the contrary, while Australia has also been in lockdown, it has varied by state, and overall has been less restrictive than New Zealand’s. For example, while in New Zealand people have not been allowed to leave their homes unless they were essential workers or for exercise, Australians can still order food, and shop for some non-essential items. This has allowed the Australian economy to not suffer the same level of stress, and thus is most likely the reason why the Aussie has made larger gains over the past few weeks.
While it is still uncertain how long Australia’s lockdown will last, the effectiveness of its lockdown has given investors hope in the strength of the Aussie Dollar. While the coronavirus may have impacted the Australian and New Zealand Dollars in the short term, the fact that they have been able to effectively stop the virus from spreading any further gives hope for investors that their economies will be able to recover sooner and faster than other countries.
With the Level 4 lockdown now over in New Zealand, our team of analysts are now back in the office and ready to resume our usual content. This means we will no longer be livestreaming on YouTube, but we will be uploading our daily Trade in 60 seconds videos again. For our first day back in the office, we talked about the Aussie dollar, which you can see below here: