MELBOURNE, AUSTRALIA. Image source: Abdul Razak Latif © 123RF.com
Earlier today, the Australian Bureau of Statistics released downbeat inflationary numbers for the fiscal quarter ending in June. It was revealed that the Consumer Price Index has decreased to negative 1.9 per cent from 0.3 per cent the previous quarter.
Although the findings of the economic report marginally exceeded the initial market expectations, which were projecting a contraction to negative 2.0 per cent, the harmful impact of the coronavirus fallout has driven the Australian economy into deflation.
Australia Inflation Rate. Image source: TradingEconomics.com
Since the beginning of the coronavirus fallout in early 2020, Australia became one of the hardest-hit advanced economies due to its particular organisation. Its economy is massively dependent on uninterrupted trade with its biggest partner – China.
After the global supply chains were jolted in February, trade between the two countries became strained, which subsequently led to Australia's current predicaments, exacerbated by this weakened price stability.
The tentative global recovery during the second quarter cushioned some of those economic strains on Australia, which led to a significant rally for the Australian dollar. The Aussie picked up from historical lows and advanced against most other majors over the last few months.
This trend, however, is now threatened by recent developments, as we argued in our latest analysis of the AUDNZD pair. Surges in COVID-19 cases in Australia, as well as fears over a second wave globally, would impede this fragile recovery, potentially even lead to a new significant downturn.
All underlying factors seem to be signalling the same likely outcome for the Aussie. Weakened price stability from muted inflationary pressures coupled with the accelerating pandemic would very likely prompt a new scramble for safe-havens.
This trend, which was already observed in the wake of the pandemic, would cause the demand for the Aussie to wane in favour of lower-risk securities.
Nevertheless, shorter-term bias looks different. As can be seen on the hourly chart below, the AUDNZD continues to be developing its latest uptrend, which was commenced yesterday.
The shooting star candle could be interpreted as an early signal of a potential trend reversal, which is somewhat supported by the reading of the MACD indicator. The underlying momentum remains ostensibly bullish, but it does not appear to be rising anymore.
At any rate, traders should not rush to sell the pair More robust bearish indications would come when the price action manages to break down below the 10-day MA (in blue) and the 10-day MA (in red).
AUDNZD 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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