RBA and Australian Employment Preview: Useless rate cut to do no good to Aussie

It’s going to be a busy start to Thursday in Australia, as the RBA has planned an emergency meeting, while the country will release alongside February employment data.  

On Tuesday, the central bank released the Minutes of its previous meeting, which showed that policymakers cut rates by 25bps to 0.50% amid concerns the coronavirus crisis would affect the local economy. All around the globe, central bankers and policymakers have announced measures to support the economy amid material fears of an economic downturn. So far, Australian response has been among the most tepid, when considering the latest US Federal Reserve 100 bps cut, and the trillions of dollars pumped into the economy.

RBA to cut rates forced by circumstances

Market players are anticipating a 25bps rate cut in Australia, to a record low of 0.25%, although such modest cut will hardly do something for the economy. Furthermore, it would boost the risk of a housing bubble, with prices in the sector at records and cheap loans available. The RBA has been reluctant to cut rates amid fears it would do more damage than good.

So, the central bank is pretty much “forced” to take a measure that will do little for the economy, and at the same, time boost risks. Still, policymakers have no choice. Lowe & Co. could also announce additional measures, those considered “unconventional.”  Most likely, government bond purchases to pump liquidity.

The RBA decision would overshadow the outcome of the employment report, although this last has chances to shake the market, as it will be released three hours ahead of the RBA announcement.

The country is expected to have added 10,000 new jobs in February, while the unemployment rate is expected to remain unchanged at 5.3%. In January, the country added 13.5K, with 46.2K full-time positions added and part-time jobs down by 32.7K. A better-than-expected report could help the Aussie bounce a bit from current lows, particularly considering extreme oversold conditions.

AUD/USD Technical Outlook

The AUD/USD pair is down for an eighth consecutive day, and at levels not seen since early 2003. Market players continue to run into the greenback amid fears, which means that extreme oversold conditions in the pair are being ignored. An encouraging employment report and a moderate announcement from the RBA may help it correct higher, although there’s no reason for the rally to extend. Once the dust settles, sellers will likely reappear.

The main support is the 0.5800 figure, where the pair set a monthly high back in June 2002. Below it, the next relevant area to watch is 0.5680. Resistances come at 0.5960 and the 0.6010/20 region.