AUD/USD Forecast: Aussie set for another plunge down under as coronavirus carnage spreads
ANALYSIS | Published Apr 03, 2020 14:48 (+00:00)
- AUD/USD has been dropping as coronavirus spreads and amid a worsening market mood.
- The RBA decision, disease updates, and US jobless claims are eyed in the week leading to Easter.
- Early April’s daily chart is showing that bears are in control.
- The FX Poll is pointing to long-term gains.
The thrill is gone – AIUD/USD’s sugar rush, fueled by monetary and fiscal stimulus, faded out. As COVID-19 continues spreading around the world, the mood soured, and the risk-off sentiment is weighing on the Aussie. The first full week of April consists of updates from central banks and plenty of coronavirus headlines.
This week in AUD/USD: Risk-off takes its toll
More than one million people have been confirmed to have COVID-19, and over 50,000 have died. The rising human toll has weighed on sentiment and also implies a more serious economic damage. The Australian dollar – a risk currency – succumbed to the safe-haven US dollar.
President Donald Trump changed his tone and adopted a more somber approach – talking about two painful weeks and extending the social distancing guidelines to the end of April. Around a quarter of total coronavirus cases are in the US, with New York on the verge of having more infections than any country.
Most US states have imposed stay-at-home orders, and that has triggered mass layoffs. Weekly jobless claims for the week ending March 28 surged to 6.648 million – worse than the direst expectations. The Non-Farm Payrolls report showed a loss of 701,000 jobs, far worse than forecasts but not reflecting the real magnitude of the damage, as it was compiled in the middle of the month.
Other indicators – previously considered leading ones – seem stale amid the rapid pace of events. That applies to American and Australian figures alike. While the Australian Industry Group’s Construction Index tumbled to 37.9 points, the Manufacturing Index climbed to 53.7 in March – reflecting expansion.
The land down under has only around 5,000 confirmed cases at the time of writing, and fewer than 100 deaths. Perhaps that is why Prime Minister Scott Morrison said that “every job is essential” – a relatively upbeat approach as several countries called off work that cannot be performed at home.
China, Australia’s No. 1 trade partner, is attempting to return to normal. However, there are growing suspicions about the world’s second-largest economy’s coronavirus figures. US intelligence services reported that the number of mortalities is probably much higher than around 3,000 confirmed by Beijing. Recent economic data also seems too rosy. Purchasing Managers’ Indexes for March – official and independent statistics for both the manufacturing and services sectors – have all come out above expectations
Australian and Chinese events: Coronavirus data and Chinese PMIs
Updates on the disease remain left, right, and center. An increase in COVID-19 cases in Australia may weigh on the Aussie. If China returns to lockdowns, it would also be a disappointing sign. The Australian economy depends on commodity exports to China, and any new restrictions could hurt the economy.
The Reserve Bank of Australia’s rate decision stands out on the economic calendar. The Canberra-based institution has already slashed borrowing costs to 0.25% and kicked off Quantitative Easing on a limited scale. Governor Phillip Lowe and his colleagues may decide to wait for more developments before expanding the program, but the fast pace of events means anything is possible.
Australian Trade Balance and Home Loan figures are for February – before the crisis – and will likely be ignored. China’s inflation figures late in the week may show if disruptions to manufacturing – the supply shock – have pushed prices higher.
Source from https://www.fxstreet.com/analysis/aud-usd-forecast-aussie-set-for-another-plunge-down-under-as-coronavirus-carnage-spreads-202004031448