03.03.202009:07 Forex Analysis & Reviews: AUD/USD. The Reserve Bank of Australia has applied "antiviral measures"

The Reserve Bank of Australia has become the first Central Bank to respond to the coronavirus epidemic by lowering its interest rate. The aussie reacted quite calmly to this fact, even though according to forecasts, many experts expected this to happen at the March meeting. Nevertheless, Philip Lowe decided not to delay the "antiviral measures", and lowered the rate by 25 basis points, which is a record low of 0.5%.

The market's reaction to the RBA's decision can be seen through the strong escalation of the situation on the eve of the meeting, as well as in the general weakening of the US dollar. In his final speech, Philip Lowe said that earlier conclusions saying that the country economy had reached a "soft tipping point" were false. He stressed that the country GDP growth in the first quarter will most likely be noticeably weaker than previously expected. He directly blamed the coronavirus on this, as according to him, before the outbreak of the disease, the slowdown in the world economy, which began the year before the last, was coming to an end. Now, because of the situation, a "relapse" is possible. In line with this, Lowe said that in his opinion, it is still too early to say the persistence of the effects of the coronavirus, as well as at what point will the world economy improve. Nevertheless, it is already clear that the virus has slowed the RBA's progress towards its employment and inflation goals.

Lowe said that the Reserve Bank of Australia "remains ready to ease monetary policy." He also noted the weakening of the main economic indicators: the RBA head mentioned that since the last meeting, retail sales, as well as investment in construction and business, have declined. Consumer confidence remains weak, and the level of wages is still growing slowly. Meanwhile, the unemployment and underemployment rates have increased. Given this soft rhetoric, we can assume that the next round of rate cuts will be very soon, and according to the general expectation of the market, this will happen at the meeting scheduled in June.

The possibility of such a step is quite high. Now, the first statistics are beginning to arrive, which reflects the consequences of the spread of the coronavirus. For instance, the Chinese Caixin PMI in the manufacturing sector, which was published yesterday, came out much worse than the rather weak forecast values: instead of falling from 51 points to 46 points, it fell to 40.3 points in February. Even during the global crisis on 2008, the indicator was not at such lows. This suggests that the components of new orders and employment fell, and that the epidemic has a negative impact on the international supply chains, due to the restrictions on entry and exit from China.

The PMI was only the first sign that eloquently states the scale of the possible consequences of the coronavirus. Now, we can only speculate on how much the Chinese economy will slow down in the first quarter of this year, and whether the virus will affect the main indicators in the second quarter. Since China is Australia's main trading partner, such prospects suggest that it is not the last time that RBA will have to reduce interest rates this year.

Why did the AUD / USD pair reacted so calmly to the results of the March meeting? In my opinion, the market was absolutely ready for this scenario, since the RBA has been talking about easing the monetary policy since the end of last year, when disappointing data for the third quarter was published (this is even before the spread of the coronavirus ) The epidemic has only increased the likelihood of a rate cut, so today's decision was inevitable. In addition, traders seem to have paid attention to the optimistic notes that the members of the Central Bank said: "as soon as the coronavirus epidemic is stopped, the Australian economy will return to the path of recovery and growth." In other words, the regulator linked the country economic problems to COVID-19.

The aussie is currently trading in the wake of the US dollar, which has been showing general weakness recently, due to the disappointing data of the ISM manufacturing index published yesterday. It once again disappointed the dollar bulls, as it came out on the border of the 50-point level (50.1), which was worse than the forecast values. The price component of the index collapsed to the level of 45.9 points, the worst result since October last year. Such figures only reinforced rumors that the Federal Reserve will reduce the interest rate at the meeting on March, which has been going on since Friday, after the publication of the Fed head's statement. In relation to this, Donald Trump has also been stating the needs of a rate cut, however, he had been repeating this for six months already, without any progress.

Despite the RBA's rate cut and the announcement of similar steps in the future, the situation of the AUD/USD pair is still not clear at the moment. As you can see, the pair has already largely played back this fact, falling to the 64th figure last week. Now, the pair's traders are fully focused on the prospects of the US currency, which depends on the dynamics of the key indicators and comments from Fed members. Further weakening of the US dollar will allow the aussie to develop a corrective growth to the first resistance level of 0.6650 (the average line of the Bollinger Bands indicator on the daily chart).