Markets

Breakdown of the latest developments on the global exchanges
Sep 2, 2020, 5:34 AM GMT
#Economics

The RBA Recoils on Bigger-Than-Expected GDP Slump in Q2 Just a Day After its Meeting

The Australian economy shrunk by 7 per cent in the three months to June, which missed the consensus forecasts for a contraction of 6 per cent in Q2, said the Australian Bureau of Statistics.

The news comes just a day after the September meeting of RBA's Governing Board, during which the Board claimed that so far, the coronavirus fallout has had a comparatively smaller adverse impact on the economy than initially feared.

Today's data reveals that the assertions of the Board were ultimately unjustified and that the Australian economy continues to reel from the coronavirus crisis. There is an additional reason as to why investors could be concerned with the findings of the GDP report for Q2.

The RBA based its most recent monetary policy adjustments on inaccurate Gross Domestic Product projections, which means that further adjustments to the policy might be needed in the near term.

The bigger-than-expected contraction would likely have an adverse spillover effect on other economic factors such as inflation and employment, which could trigger a wave of unwelcoming developments.

Hence, RBA's further intervention in October might prove integral for cushioning the impact of this unexpected quarterly crunch and ensuring the continued stability of Australia's financial system.

Meanwhile, the GDP downturn in Q2 is already starting to have a noticeable rippling effect on the value of the Australian dollar. The aussie depreciated against the greenback in the early hours of today's trading session, likely prompting an end to the recent bullish trend of the pair.

As can be seen on the 4H chart below, the AUDUSD rebounded from the major resistance level at 0.73900, which has been prevalent since December 2018.

This development represents a strong indication in itself of the bullish trend's inability to continue advancing further north at the current rate, potentially also signifying a new trend reversal.

The MACD indicator confirms these expectations for the changing direction of the market in the short-term. As can be seen, there was a recent bearish crossover between the indicator's two EMAs, which signifies rising bearish momentum.

Even though the price action remains concentrated above the 30-day MA (in green), which, in turn, is positioned above the 50-day MA (in blue), this ascending order could be broken soon. The price action could fall as low as 0.72500 before it finds the necessary support to check the bearish correction.