Fundamental Australian Dollar Forecast: Bearish
- The domestic Australian data slate is quite bare this week
- Even were it full, the numbers would need to go some to push coronavirus out of the spotlight
- The Aussie’s links to global growth will keep it pressured
No news is highly unlikely to be good news for battered Australian Dollar bulls in the coming week. The currency faces a lack of scheduled economic data or central bank activity, but that lull is only more likely to leave the trading field wide open to the coronavirus story.
The Australian Dollar has already been smashed by the contagion’s horrible spread. As perhaps the major currency most correlated to global growth expectations its pain is unsurprising. Moreover the virus’ impact feeds back to the Australian economy in any number of ways. The country’s huge raw-material export links to China along with its continental size and economic reliance on long-distance travel and tourism are merely the two most obvious ones.
Another became clear in the past week as the Reserve Bank of Australia cut interest rates to a new record low for the second time this month. This move not only stripped the currency of what little monetary support it had, it also walloped Australian lenders and saw the ASX 200 equity benchmark fall even further.
The Australian Economy Has Not Rolled Over. Yet.
There remain glimmers of hope. Australia’s formidable job creation machine continues to rev, with record numbers employed according to February’s data. Of course, these numbers predate the worst impact so far of the virus on global markets and similar strength ahead looks most unlikely. That said, base rates are now down to the 0.25% level which the RBA has heavily suggested in the past is some sort of natural floor. The coronavirus may have changed thinking here to some extent but, all the same, the bar to still-lower borrowing costs may be higher than the market now assumes, with fiscal policy probably left to do most of the stimulus heavy lifting from here.
In the end though, that’s just nuance, and the global market is not exactly big on that right now. For the near-term, coronavirus will drive and that’s likely to mean yet more bad news for those Australian Dollar bulls as they contemplate a week with few other distractions.
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— Written by David Cottle, DailyFX Research
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