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AUD/USD bears in control, but watch for over extended downtrend correction

  • AUD/USD bleeding to the downside as coronavirus grips.
  • RBA meeting back on the map as a live one, possible insurance rate cut on the cards. 
  • However, analysts at Commerzbank warn AUD is at end-stage of a longer-term down move.

AUD/USD is currently trading at 0.6554 and -0.73% following a drop from 0.6607 to 0.6551 as markets expect downside risks to Gross Domestic Produce to continue, given the coronavirus spread, bushfires and reduced demand from China. 

AUD/USD has been a one-way train wreck for the bulls as corrective efforts have been continuously thwarted due to media reports surrounding the escalation of risks to the global economy and world trade pertaining to the coronavirus spreading to all corners of the world. According to the Coronavirus COVID-19 Global Cases by Johns Hopkins CSSE and Worldometer websites, the novel coronavirus COVID-19 is affecting 46 countries and territories around the world and 1 international conveyance.

There are between 81,296-81,245 confirmed global cases while Mainland China, South Korea and Italy are now leading the scales of national epidemics. While one could argue that there have been slowing cases in China data, which was pointing in the right direction, there are still concerns as to how reliable the data can be. For instance, in the Caixin yesterday, it was saying that in one sample 14% of recovered virus patients in Guangdong tested positive when checked up again, and hence may still be infectious. 

Australia is showing relatively few in comparison of just 22 cases reported. However, we have seen a far greater recovery rate of 30,359 vs a death toll of 2,770. Regardless, the economic impact and ramifications for global trade are what is impacting the Aussie, putting the Reserve Bank of Australia firmly back on the map for additional rate cuts. 

Spread of the virus could impact Aussie trade heavily

The spread of the virus is going to impact Asia heavily. The China Beige Book private data is said to be a lot worse. In a "Bloomberg Money Undercover", Bloomberg's Lisa Abramowicz talked with Leland Miller, CEO of China Beige Book International. They discussed the recent results from the firm's survey of business conditions in China, and the potential for credit defaults in the country. 

As much as 78% of exports head to Asia and the RBA’s clear reluctance to cut rates again last time around, which had been lending support to AUD by keeping market pricing for a cut to 0.5% below 50% until May, will likely be weighed again by markets ahead of next month's meeting. An insurance cut might be on the cards considering the uptick in the unemployment data and other poor data of late, (such as yesterday's Construction Work Done for the fourth-quarter which implies downside to Q4 GDP), which could force the RBA to resume easing policy, keeping AUD trending lower.

AUD/USD levels

Weekly and monthly charts imply that we are at the end stage of a longer term down move, so extreme caution is warranted, according to analysts at Commerzbank. "Where are we wrong? The market will have to overcome the accelerated downtrend at 0.6684 on a closing basis to alleviate immediate downside pressure and target the 200-day ma at 0.6847. This guards the 0.6933 January high."

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