We know the price of crude oil is crashing. We also know that it has something to do with Covid-19 and it turns out that this will have an impact on China’s deflation for the next few months. But remember, the Covid-19 outbreak that first emerged in Wuhan has caused China’s economy – especially industry – to spin. Data shows that China’s producer price index (also called the Producer Price Index / PPI) has been moving in a negative area since August 2019. It returned to positive territory in February, but it seems that the impact of Covid-19 has not completely disappeared. In March and April 2020, China’s PPI fell back to negative territory at -0.4% and -1.5%. You could get more information at http://www.forextradingchina.com/en/china/.
China is Australia’s biggest trading partner. About 26% of Australia’s trade activity is with China. The interest rate cut by the PBOC is likely to put pressure on the Australian dollar against the USD (AUDUSD). Take an example when the PBOC cut interest rates on April 20, 2020, when the PBOC lowered the one-year benchmark interest rate from 4.05% to 3.85% and the five-year interest rate from 4.65% to 4.75%. On that day the AUDUSD was opened lower. Even though it had tried to strengthen, the PBOC’s decision to hold down the pace of AUD strengthening and continued with further weakness in the next day. Technically, on the D1 (daily) time frame, it can be seen that the price is moving in the resistance area obtained from the Fibonacci retracement and 50 Exponential Moving Average. This combination causes this resistance area to be said to be quite strong.
Any appearance of a bearish signal at the range 0.64502 has the potential to push AUDUSD down to the 0.60909 area. Furthermore, if the price breaks below 0.60909, there is a possibility for further weakening to the range of 0.58686 or 0.55093. The combination of this technical analysis combined with the potential for a cut in interest rates by the PBOC makes the possibility of a weakening of the AUD against the USD even greater unless later it turns out that the AUDUSD manages to break above 0.64502. Even so, there is no need to worry about losing opportunities, because it will open up opportunities for AUDUSD to strengthen up to the range 0.66725-0.70318.