Economic conditions in Australia are sharpening. Finding from an inquiry into financial industry misconduct in Australia will be announced today, which may cause a freeze on loans. This, in turn, may exacerbate the credit crunch in the country. Prime Minister Scott Morrison has warned that Australia's economy is facing "serious consequences" if this happens.
The housing market in the country usually slows down in January, but this year the situation looks worse than usual. Property prices have fallen in the past month by 1%, driven by a 16% drop in Melbourne and 1.3% in Sydney.
One of the winning sectors is the advertising one, where local companies' shares have risen 16% over the past year. At the same time, Australia's business conditions is currently experiencing the biggest drop since 2008.
The Business Conditions Index in a country suffered a severe downturn, which led to a slight sale of the Australian dollar over the Asian hours.
Apparently, Trump's trade war has negatively affected the economy of Australia, as a country is highly commercially tied to China.
The slowing of the country's growth, an anemic rise in wages over the past five years, and a decline in economic activity could lead to a very recent rate cut by the Australian central bank. Markets estimate the likelihood of a 70% reduction in interest rates this year, although recent comments from central bankers were that the next interest rate change would be an increase.
The AUDUSD pair technically signals some selling potential:
DeM (8) makes the same divergence from the previous local maximum since the beginning of December. Here we can wait for a new test of the moving average for better positioning. The zone remains suitable for building long-term positions.
Any return of the price below 50SMA may further exacerbate the downturn and see levels of 0.66 - 0.68 by the end of 2019.
Alternative scenario: With the favorable development of the meeting US China next week the situation can turn things in favor of AUD, and a closed bar over 200SMA will spoil the negative scenario at least in the short term.
Source: Bloomberg Finance L.P.
Charts: Used with permission from Bloomberg Finance L.P.
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