Aussie Down On Deterioration Of Consumer Sentiment

Aussie Down On Deterioration Of Consumer Sentiment
March 14, 2019


The Australian dollar declined today, following reports of deterioration in consumer sentiment. The decline was also aided by a slowdown in global growth, the trade war between the US and China, which is the major export market of Australia, weak housing market, and the country’s lack of economic diversity. From a high of 0.7097, the AUD/USD pair has declined to record a low of 0.7020 earlier today.


Australian dollar hammered on slowdown concerns 

The Reserve Bank of Australia, the country’s central bank, took a U-turn during the last month’s monetary policy meeting by announcing its intention to implement economic stimulus measures. The abrupt change in policy was highlighted by a study published yesterday, showing that the Melbourne Institute and Westpac Bank consumer sentiment index fell 4.8% in March, reversing a 4.3% jump in February. The index, collated through a survey of 1,200 people, fell 4% from 98.8% a year earlier, implies that cynics now outmatched optimists. That stands in stark variance with ‘cautiously optimistic’ consumer mindset through much of 2018.

Diana Mousina, a senior economist at AMP Capital, said: “The consumer and business confidence surveys confirm the weakening in the Australian economy lately and point to subdued conditions looking ahead. The continued poor data flow in Australia means that the next RBA meeting in April is ‘live’ which means that the odds of no change versus a rate cut look fairly even despite the RBA appearing neutral in its commentary.”

Notwithstanding the tenaciously unbiased attitude of the RBA, local money markets have already priced for an official cut in the benchmark rate by 25-points in the August meeting. One fundamental motive for the report’s somber mood was the sharp downturn of the A$1.9 trillion economy in the second half of 2018, partly due to the housing slowdown.

Commenting on RBA’s change of stance, David Plank, ANZ’s head of Australian economics said: “We are mindful it may not take much additional weakness to trigger an easing from the RBA.”  The economist also removed statements related to a rate hike in his note on RBA’s long-term rate outlook.

ANZ anticipates policy easing to happen as early as May, even though its baseline case scenario is that rates will remain on hold until 2020. The fourth-quarter 2018 gross domestic product (GDP) grew below-trend, at an annual rate of 2.3%, underscoring increased economic pressure.

As per Matt Barrie, a tech entrepreneur, the Australian real estate market has seen an exceptional run for years, but those days are gone forever. He believes that the country’s economy has now reached “crisis mode.”

Barrie thinks that the effect will be even worse than the impact of the 2008 financial crisis that had a devastating effect on countries such as Spain and Ireland.

He was also critical of the economic diversity of Australia. Matt Barrie said: “In the last decade our economy has basically been (based on) shipping iron ore and coal, building houses and bringing people in (from overseas) to buy those houses, and that’s it.”

Barrie opined that the economic diversity of Australia was worse than emerging markets such as Vietnam and Oman. Therefore, according to him, 2019 and 2020 would be more troublesome for Australia and several countries across the globe that the previous two years (2017 and 2018).

In other news, the Reserve Bank of Australia has cautioned that climate change presents considerable risks for Australia’s economy. Guy Debelle, RBA Deputy Governor, said that historically, global warming has only been seen as affecting agricultural production, but that that is no longer the case.

Debelle said: “Agriculture is the prism through which we have historically thought about the effect of climate on the economy. Today, climate change presents significant risks and opportunities for a broader part of the economy than agriculture, though the impact on agriculture continues to be significant.”

Signals of an economic slowdown are expected to keep the currency pair weak in the days to come.

Technically, the AUD/USD has started declining after forming a near double top at 0.7090. The currency pair is also trading below its 50-day moving average. The RSI indicator has a reading below 50. The next major support is expected only at 0.7020. As a result, we can expect the currency pair to move down in the short-term.

AUD - technical analysis - 14th March 2019

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Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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