AUD/USD rally stalls as business confidence tumbles to all-time low

The AUD/USD pair stalled today as investors reacted to Chinese trade data and Australia’s business confidence numbers.

AUD/USD stalled after mixed data from Australia and China

Australia business confidence slip

Australian business confidence slipped to an all-time low according to a survey by the National Australian Bank (NAB). The business confidence declined to -66, its lowest level ever recorded. It was also lower than February’s -4. Meanwhile, business confidence declined to -21, which was the lowest level since the last financial crisis.

The current pandemic is the reason why confidence has eased in the country. Most companies closed their businesses since March as the government attempts to prevent the disease from spreading. These measures have worked and the government has started to partially open the economy.

In the report, Alan Oster, the Chief Economist at NAB said:

“Worryingly but not surprisingly, business’s outlook is the weakest ever. Business confidence has fallen to its lowest ever level – and in a single month. Business has essentially told us that trading conditions, profitability and employment all went backwards in a big way in the month”.

According to the report, most sectors in the Australian economy have been hit by the crisis. However, the most hit were recreation and personal services because most entertainment spots have been shut. In addition, forward orders declined to their lowest level in history while capacity utilisation also slipped.

These numbers imply that the Australian economy could be headed to its first recession in more than 30 years. A recent analysis by the Treasury showed that the unemployment rate would double from the current 5.1% to about 10%. Westpac expects the rate to rise to 17%. Another report by Westpac said that the economy could contract by 8.5% in the second quarter and another 0.6% in the third quarter.

Ray of hope emerges

There is some good news amid all the negativity. A report earlier today from China showed that the country is starting to bounce back. Data from the customs administration showed that exports declined by 6.6% in March after slipping by a whopping 17.2% in the previous month. Analysts surveyed by Bloomberg were expecting the number to fall by 14%.

Imports fell by just 0.9% after declining by 4% in February. As a result, the country’s trade surplus bounced back to more $19 billion. These numbers follow the positive manufacturing PMI data that were released earlier this month. The PMI rose to above 50 as more people started to go back to work.

China is an important country for Australia. According to statistics, Australia exports about two thirds of all its goods to China. China is also the biggest contributor to the Australian service industry especially in education. They are also among the biggest shoppers of the country’s real estate and luxury items.

Therefore, a resurgent China means that the Australian economy could soon see a bounce. This is partly the reason why the AUD/USD pair has risen by more than 3.60% in the past thirty days.

Another big news from Australia today was that Westpac bank had set aside more than $900 million to pay for child exploitation and money laundering scandal. This will be the biggest fine after the $700 million fine that was paid by Commonwealth Bank in 2018.

AUD/USD technical outlook

The four-hour chart shows that the AUD/USD pair has found some resistance at the 78.6% Fibonacci Retracement level. The pair is also above the 100-day and 50-day exponential moving averages while the RSI has moved from the overbought level. The pair could continue moving lower and possibly test the 61.8% retracement level and the 50-day EMA.