Event non-ATF Mobile

The domestic GDP expanded by 0.5 per cent (seasonally-adjusted) for the last quarter of the year 2019 as reported by the ABS on 4 March 2020. The result surpassed the market expectation of +0.4 per cent, down by 0.2 per cent from the previously reported quarterly change of +0.6 per cent.

The economists and other stakeholders of the financial system assessed that the bushfire, which irrupted in many regions, could severely impact the economy; however, there was only a slight impact, as inferred by the reported change in quarterly GDP figure by ABS.

However, despite a decent quarterly growth, the full-year growth in GDP growth for 2019, which remained at 1.8 per cent, was down against the 2.9 per cent expansion clocked in 2018 and reflected the weakest reading in the country’s 28-year run without a recession.

Australia Annual GDP Growth (2011-2018) (Source: World Bank)

The market assessment of +1.8 per cent in the annual growth is weakest in the last 18 years.

Australia Annual GDP Growth (19651-2018) (Source: World Bank)

Since a slight recovery in the GDP annual growth in 2012, the annual growth in GDP is on a decline, which is one of the major factors leading towards a depreciating home currency.

The home currency is deprecating since peaking to USD 1.1087 (high in July 2011); however, the currency appreciated post tumbling to the level of USD 0.6826 (low in January 2016) to USD 0.8136 (high in January 2018).

However, post the recovery, the domestic currency is again on a plunge and has reached a low of USD 0.6215 (intraday low on 12 March 2020), which reflects a new decade low.

  • Recent data suggests that the home currency could remain under pressure for a while

The recent outbreak of COVID-19 is further putting pressure on the currency and weakening the business confidence, inferred from a drop to -4.0 points on the business confidence index reported by NAB for February 2020, which remained significantly below its previous monthly fall of -1.0 points in January 2020, which also marked the worst result since July 2013, reflecting that the businesses are mostly pessimistic over the domestic economic conditions.

NAB Business Confidence and AUD (Source: Thomson Reuters)

Not just the business sentiment, the consumer sentiment across the continent has also taken a hit in the wake of COVID-19, inferred from the drop in Westpac-Melbourne Institute sentiment index, which fell below the threshold level of 100 to stand at 91.9 in March 2020, down by its previous level of 95.5 in February 2020.

The below-threshold value of the sentiment index for two consecutive months suggests that the home currency could face a some heat, in the wake of falling GDP, and weak consumer & business confidence.

  • Domestic currency poised for further depreciation

AUD on a Monthly Chart

On the monthly chart, the currency is trading below the 78.6 per cent level of the primary rally, which started during the late 2018 and halted in mid-2017. As per the classical technical analysis theory, the 78.6 per cent corrected level of the primary rally is where the bulls get active, albeit, currently there are no signs, which could confirm the probability of the same.

The spread between the exponential moving average of 21- and 50-period is again enlarging, suggesting that the bearish sentiments are still prevailing. The volume on the monthly time-frame is declining, which could indicate an early sign of weakness in the downtrend.

Things to note on the monthly chart

  • Declining volumes.
  • Below 78.6 per cent retracement of the primary up-rally.

AUD on a Weekly Chart

On the weekly chart, AUD retracted back post touching the resistance zone of Span A (suggested by the Ichimoku clouding technique), which is the mean value of the conversion line and the base line. Currently, the currency is below the Span B (or mean value of 52-period highs and lows) with a negative crossover between the conversion line, which is the mean value of 9-period highs and lows, and the base line (mean value of 26-period highs and lows). The 14-week RSI is also slipping low, confirming indication from Ichimoku.

Despite negative sentiments and signals, the weekly chart is showing some positive signals as well. The negative cross between the conversion line and the base line is moving with a small gap, while the spread between Span A and Span B is narrowing down, which could be a ray of hope for bulls.

Things To Note On the Weekly Chart

  • The currency is trading below Span A with a negative crossover between the conversion line and the base line (however, the spread between them is low).
  • Narrowing negative spread between Span A and Span B.
  • Slipping RSI.

AUD on a Daily Chart

On the daily time frame, the currency is trading below the short-term GMMA, which is further quoted below the long-term GMMA, suggesting that bears are currently dominating. The spread between the short-term GMMA and the long-term GMMA is enlarging further, which could be negative for the currency.

The recent plunge was followed by a spike in volume, suggesting a brief sell-off; however, the currency is now rebounding from the 100.0 per cent level of the Fibonacci projections, projected from the wave point marked as 0,1, and 2 on the chart shown above.

The currency is now trying to recover with slight volumes and could face primary hurdle around the zone where short-term GMMAs are merging.

Things to Note

  • Short-term GMMA is below long-term GMMA.
  • Volumes followed the trend and surged, suggesting a brief sell-off.
  • Prices are rebounding from the 100.0 per cent level of the downside Fibonacci projections.

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