04.02.201910:52 Forex Analysis & Reviews: AUD / USD. Aussie waiting for RBA: Is there any reason for optimism?

The foreign exchange market this week has lost an important player, China. For five days, the inhabitants of the Middle Kingdom will celebrate the New Year on the lunar calendar, thereby creating an information vacuum regarding the prospects for the negotiation process between Beijing and Washington. This topic came to the fore after the release of controversial Nonfarm, so the market will have to redirect its attention to other fundamental factors.

In particular, the AUD / USD currency pair traders focused on the upcoming meeting of the Reserve Bank of Australia, which will take place tomorrow, February 5th. And although no one expects any decisions from the RBA, the rhetoric of its head can influence the dynamics of the pair, causing fairly strong volatility.

Let me remind you that in early January, "Aussie" pushed away from the base of the 70th figure and in early February, it reached a local price peak, the level of 0.7298. Significant growth of almost 300 points was due primarily to the weakness of the US currency, which is under the yoke of the "pigeon" position of the Fed. The Australian does not have its own arguments for strengthening, given the recent data on China's GDP growth, as well as taking into account the difficult situation in the commodity market. But even the weakening of the US dollar prevented the bulls of the AUD / USD pair from entering the 73rd figure, marking the priority of the northern movement. And tomorrow's RBA meeting can only strengthen the bearish mood on the pair.

Last week, key indexes of Australian inflation growth were published. And although they came out in the "green zone", surpassing the pessimistic forecasts of experts, they cannot be called encouraging. Moreover, this release served as another confirmation that the RBA will not change the parameters of monetary policy in the foreseeable future in the direction of tightening (whereas the "reverse" is not excluded at all). Thus, the consumer price index in annual terms in the fourth quarter of last year came out at 1.8% (with a forecast of 1.7%), continuing the trend of its decline for the second quarter in a row. On a quarterly basis, inflation grew to 0.5%, while over the course of three quarters of 2018, it was at the level of 0.4%.

The latest data on the labor market in Australia also left a double impression. On the one hand, unemployment remained at a five percent level (with a growth forecast of up to 5.1%), and the increase in the number of employed exceeded analysts' expectations. But at the same time, the structure of this release is very pessimistic. The fact is that the increase in employment in the last month of the year was entirely due to part-time employment. But full employment, on the contrary, decreased by 3,000, continuing the negative trend. This factor affects the dynamics of wage growth, since full-time positions, as a rule, offer a higher level of wages and a higher level of social security.

Not surprisingly, the level of consumer confidence in Australia has a strong downward trend, especially against the background of a collapse in equity markets at the end of last year and a collapse in housing prices. In addition, there is a severe drought in Australia, which already has economic consequences. In particular, experts predict a significant decline in wheat production, and the number of cattle in the country could fall to a record low in the last 15 years.

All this suggests that the Reserve Bank of Australia at its first meeting this year may take an extremely soft position, putting pressure on the national currency. According to many analysts, the RBA will revise the forecast for GDP growth this year and next, downward, while stating a decline in consumer spending. Let me remind you that at its November meeting, the Australian regulator predicted economic growth in 2018 by 3.5%, while the real numbers were significantly lower by 2.8%. Given this fact, the Central Bank can quite sharply revise its expectations about the prospects for this year and 2020.

Some experts warn that the head of the RBA may hint at a possible interest rate cut. However, in my opinion, the cautious Philip Lowe will not rush things, especially until the end of the negotiation process between the US and China. On the other hand, he may covertly make it clear that the Central Bank is hypothetically ready for such a development of events if the phrase that "the next action of the regulator relative to the interest rate is likely to increase, is excluded from the text of the accompanying statement." But such a move is rather unlikely. The Australian regulator is unlikely to provoke increased pair volatility without extreme necessity.

Thus, the outcome of tomorrow's RBA meeting may reduce AUD / USD currency pair to the first support level of 0.7160 (lower limit of the Kumo cloud on the daily chart). If the regulator takes a softer position, the pair will impulsively reach the base of the 70th figure, where it will "meet" buyers.