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Forex Analysis:::2019-02-19

AUD / USD: RBA Protocol gives more questions than answers

The minutes of the RBA meeting was somewhat controversial, leaving more questions than answers. The rhetoric was "dovish" in nature, although the ambiguity of the wording allows for a different assessment of the prospects for the Australian currency.

In today's Asian session, the Reserve Bank of Australia published the minutes of its last meeting. This document turned out to be somewhat controversial, leaving more questions than answers. In general, the protocol's rhetoric was "dovish" in nature, although the ambiguity of the wording allows for a different assessment of the prospects for the Australian currency.

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At the January meeting of the RBA, the regulator lowered the forecast for economic growth in the country to three percent from the previous value of 3.5%. In the protocol, this situation is explained by the fact that the level of uncertainty at the moment has increased in many ways. First of all, we are talking about the slowdown of the Chinese economy and the world economy as a whole, as well as the Australian consumer activity. Here it is really necessary to note the fact that the volume indicator of retail sales in January collapsed in the negative area for the first time since February 2018. It reached the level of -0.4% with the forecast of a decline to zero.

Consumer sentiment index and activity index in the service sector also show weak dynamics, which is partly due to low wage growth. In fact, this figure has been stagnant for a long time despite the decline in unemployment. All of these lead to the fact that inflation in Australia remains consistently low at the level of 1.8% per year, while the target level of the Reserve Bank is set at around two percent.

Separately, the regulator stopped on the situation in the Australian housing market. Let me remind you that housing has fallen in price in almost all major cities of Australia especially in Sydney and Melbourne. Prices have been falling for 13 of the last 15 months and over the past three months, the rate of decline has accelerated significantly. Since the peak recorded in the fall of 2017, property in Australia has fallen in price by more than 6 percent. To some surprise, the Australian regulator took a rather ambiguous position on this issue. The ministry noted that the cost of housing has been actively growing for a long time, thus the current price reduction "is likely to have only a small impact on the economy." At the same time, the regulator warned that if the current dynamics is "stronger", this factor will not only reduce the level of consumption.

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Naturally, members of the RBA did not ignore more global issues. The Central Bank is still concerned about the resumption of the trade war between China and the United States, as this trade conflict is a "significant risk" for the global economic outlook, according to the RBA. Also in Australia, they are seriously concerned about the slowdown in the Chinese economy, the pace of which turned out to be stronger than their own forecasts.

Summarizing all the above, the regulator made a very ambiguous conclusion. According to the Central Bank, the interest rate can either increase or decrease in the future and the probability of the implementation of these options is "almost the same". However, at the moment there are no arguments in favor of a rate change (at least in the short term), the regulator will adhere to stability in this matter.

The Australian dollar reacted to the published protocol with a minimum decrease by only 30 points, dropping to the bottom of the 71st figure. The indistinct rhetoric of the RBA did not allow the bears of the AUD/USD pair to seize the initiative, hence, the price did not even test the boundaries of the 70th figure. n contrast to the head of the regulator Philip Low, the regulator members voiced a more vague position that does not allow us to unequivocally talk about increasing the likelihood of a rate cut this year. The vast majority of experts surveyed also tend to think that the Central Bank will maintain the status quo in the foreseeable future. More than half of them believe that the rate will remain unchanged throughout this and next year, at least until the first quarter of 2021.

It is worth recalling that on Friday (February 22), the head of the Reserve Bank of Australia, Philip Lowe, will speak in the country's parliament where he will report to members of the Standing Committee on Economics of the House of Representatives. The theme of his presentation involves a broad assessment of the current situation so he can more clearly determine the prospects for the country's monetary policy. On the other hand, given the rhetoric of the published protocol, it is unlikely to deviate from the announced course, especially against the background of a possible "truce" between the United States and China. The dynamics of the labor market can also have a significant impact on Aussie. The unemployment rate should remain at the same five-percent mark but the increase in the number of employees will decrease slightly to 15.2 thousand, relative to the previous month.

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Overall, Aussie continues to trade in the flat, ranging in the 100 price point range at 0.7060-0.7160. The levels of support and resistance are slightly lower and slightly higher than the indicated boundaries. Thus, approaching the "round" mark of 0.70, there is a strong support level of 0.7030 where the lower line of the Bollinger Bands coincided with the upper boundary of the Kumo cloud at this price point on the daily chart.

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Irina Manzenko
Analyst InstaForex
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