2020-03-11 • Updated
As we have seen before, JPY is the best contrast to observe AUD’s performance. In the monthly chart below, it leaves little doubt. Having dropped to almost 64.00 recently, AUD/JPY has now only 56.00 ahead in the course of the downward movement – that’s the strategic support left in the years 2000 and 2008. Will it be there? Fundamentals say, very possibly.
If you look around, you will probably find another factor pressing on the AUD. First, economic activity in China, the primary trade partner for Australia, has declined. Second, Chinese problems result in global slowdown and hit market’s risk sentiment. The latter is also hit by the new oil price war – a third negative factor. All these factors play against the Australian economy now. Consequently, Bloomberg Economics expects the Australian GDP to drop by 0.4% and 0.3% in the first two quarters this year respectively. That means – recession. And the latter means further pressure on the AUD. The Reserve Bank of Australia is trying to respond with what it has.
The RBA already reduced the interest rate to the record low of 0.5% at the beginning of March. Although that still leaves small room for the rate maneuvers, the monetary authorities are now considering implementing quantitative easing measures to fight off the recession risk. That may be implemented through yield curve control, specifically aiming at three-year bonds. Observers comment this line is more adequate than direct asset purchasing and would more easily stimulate domestic household borrowing keeping the financial conditions more favorable. Needless to say, the AUD would be happy to see the economic pace pick up at home, rather than facing the first recession since 1991.
In the short-term, expectations of the quantitative ease may put pressure on the AUD as in any other case of such monetary policy step. But in the long-term, if the measure proves to significantly improve the condition of the Australian economy, the AUD will inevitably pick up as well. However, we have to assess the actions of the Reserve Bank of Australia against other central banks as the RBA will be surely taking into account their response to the coronavirus’ economic damage: the relative impact of each bank’s policy on their respective currencies will largely define how these perform against the AUD.
China has issued new oil product export quotas to allow oil companies to send surplus barrels overseas, particularly Sinopec, which has the highest volume among quota holders. While the exact quota volume remains undisclosed, oil companies are forecasted to export approximately 3.5 million metric tons of clean oil products in September, a 10% increase from August.
Thanks to the incredible advancements in horizontal drilling and fracking technology, the United States has experienced a mind-blowing shale revolution. They've become the heavyweight champion of crude oil production, leaving Saudi Arabia and Russia in the dust. They even turned the tables and became net exporters of refined petroleum products in 2011.
Oil prices rebounded slightly on Friday but are still expected to show losses for the week due to concerns about slowing growth in the US and China. US crude futures rose 2.7% to $70.41 per barrel, while the Brent contract increased by 2.5% to $74.33 per barrel.
The past several weeks have been a real triumph for the bulls in the oil market. The Brent spot price grew by 8.5% during the last month.
Gold prices are rising for three consecutive days ahead of the Federal Reserve (Fed) interest rate decision, which is expected to remain unchanged due to declining inflation and a positive economic outlook. Investors are keen on the Fed's interest rate guidance, fearing a hawkish stance that could trigger market risk aversion.
Amid concerns of a Chinese economic slowdown, reports of declining investment often overlook China's efficient investment strategy in emerging sectors for long-term growth. China has taken measures to stabilize foreign and private sector investments, like reducing the reserve requirement ratio to boost investor confidence.
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