The Australian dollar is among those currencies that have been hit hardest by the spread of the Chinese coronavirus. It would seem that the AUD/USD pair consolidated above the key resistance level of 0.7000 at the beginning of the year, however, subsequent events again returned the aussie to its previous positions. Now the pair's bulls will again have to start a crusade to conquer an indescribable level - but only after the hysteria about 2019-nCoV comes to naught.
In the meantime, AUD/USD is testing multi-month lows - during the Asian session, the pair touched the 0.6750 mark. The pair was on such lows for the last time in mid-October, after which it began to gradually recover. The Australian dollar is becoming cheaper not only because of the panic about the virus, although this factor is the main driving force. But the bears' asset, AUD/USD, has other arguments that support the downward momentum.
First, the probability of interest rate cuts at the RBA's first meeting this year (to be held on February 4) remains quite high. After the release of data on the labor market, this probability slightly decreased due to exceeding forecast indicators - but in my opinion, these conclusions look too hasty. Of course, at first glance, the Australian labor market showed a positive trend - unemployment fell to 5.1%, while the increase in the number of employees jumped immediately to 29 thousand (with a forecast of growth of up to 12 thousand). And although de facto this is really a good result, it is separately necessary to dwell on the structure of this indicator.
The fact is that the positive dynamics of the growth of employed in December was mainly due to the growth of part-time employment - this component jumped by 29.3 thousand. But full employment, on the contrary, showed negative dynamics, decreasing by 0.3 thousand. This trend may negatively affect the dynamics of wage growth, as regular positions, as a rule, offer a higher level of wages and a higher level of social protection. Therefore, in the context of recent statements by Philip Lowe, published data on the growth of the Australian labor market do not reduce the likelihood of further measures to mitigate monetary policy by the RBA. The unemployment rate just below the forecast level (5.1%) should not inspire AUD/USD bulls. Let me remind you that unemployment was at the level of five percent at the beginning of last year, it dropped to 4.9% in February, but then stabilized in the region of 5.2-5.3%. And all these results are quite far from the RBA target level of 4.5%.
Thus, the Australian labor market data released last week is of little help to the AUD/USD bulls. In this context, tomorrow's release plays a special role in determining the prospects of the pair. We are talking about the publication of data on the growth of Australian inflation. Over the past year, the consumer price index gradually increased in annual terms. It reached 1.3% in the first quarter of 2019, 1.6% in the second, and 1.7% in the third. The inflation indicator should also reach 1.7% in the fourth quarter - at least, most analysts are sure of this. The index should reach 0.6% on a quarterly basis, which is slightly higher than the result of the third quarter.
Obviously, if inflation indicators come out worse than forecasted values, the Australian dollar will again lose ground - in this case, the likelihood that the RBA eases its monetary policy will increase again. Even if the regulator does not reduce the rate in February, it can transparently hint about such intentions - this fact will also put strong pressure on the AUD/USD pair.
Do not forget that China is Australia's main trading partner, so the problems of the Chinese economy are automatically reflected in the quotes of the AUD/USD pair. Recent events suggest that it is too early for the Chinese to calculate the damage from the spread of the virus. Yesterday, the number of infected was a little more than two thousand people - today, the number of people in China infected with the new coronavirus exceeded 4,500. Most deaths (100 out of 106) occur in Hubei Province. The current situation will continue to exert pressure on the position of the Australian currency, regardless of the results of macroeconomic reports and comments of RBA representatives.
It is noteworthy that the strongest level of support for AUD/USD is relatively close - below the level of 0.6700 (the lower line of the Bollinger Bands indicator on the weekly chart), the pair did not fall for many years. And although there were impulsive price movements, but over the next few days, the pair necessarily returned. Therefore, if the price is at the bottom of the 67th figure, short positions should be treated with extreme caution. In general, the technical picture speaks of a further downward trend in the aussie - if panic about 2019-nCoV continues to grow, and Australian inflation comes out worse than expected, then the pair will be able to test the above support level by the end of the week.