AUD - Australian Dollar
The Australian dollar advanced through trade on Monday up 1.2% to touch 6 week highs at 0.6470. Improving risk sentiment helped the AUD sustain the upturn that started in the latter half of last week, outperforming all major counterparts as investors begin to shift their attentions toward a post COVID19 landscape. While we are still a long way from declaring victory against the pandemic that has brought the world to a shuddering halt markets are buoyed by signs we are edging nearer a return to normal as lockdown restrictions are now starting to be scaled back.
Having recouped nearly all the losses suffered through March, when panic selling, and widespread uncertainty thrust markets into a sudden risk off environment the AUD now looks an attractive option as attention turn to the economic aftermath caused by the coronavirus. Swift and proactive action in containing imported cases and aggressive social distancing measures helped limit the number of community transmitted outbreaks in Australia softening the devastating health impacts and ensuring, for now at least, Australia has been spared the worst of the pandemic. Our ability to largely combat the virus now makes us an attractive option, when compared with European and North American counterparts. As long as community transmitted cases remain low the domestic economy can gradually be opened up helping limit the impact to GDP and hopefully ease the unemployment burden. While the AUD does not typically perform well in a low growth environment, the coronavirus has changed the rules and in an world where social restrictions are expected to shutter normal economic activity for months if not year, an economy that is able to open at a faster pace than its peers becomes an attractive option as uber loose monetary policy will likely be tightened at a faster pace offering a promising yield return.
Having met resistance at 0.6460 we will look for a consolidated break above this handle as a sign the upturn can continue. Having enjoyed a string of higher lows and higher highs through the last month a jump above resistance could prompt a move back through 0.65 and beyond if the risk on mood continues through the short term.
The US dollar fell through trade on Monday, giving up some of last weeks gains as risk sentiment drove traditional safe haven currencies lower. Plans for easing lockdown and social distancing restrictions have helped fuel a recent risk on rally as positive sentiment begins to drive short- and medium-term direction. Italy, one of the worst hit by the coronavirus began reopening manufacturing and construction services, while Spain, having implemented some of the strictest lockdown measures across Europe started loosening its own social distancing controls allowing young children to play outside for the first time in 6 weeks. The dollar index fell, down two tenths of a percent and tested a break below 100 as commodity currencies led gains and the Euro bounced back above 1.0850.
Risk continues to drive direction with the current risk on move heavily reliant on a sustained flattening of the COVID 19 curve, especially as the global economy begins to gradually open up again. Assuming we can avoid a 2nd wave of infections risk demand should continue to drive demand adding downward pressure on haven assets. With little of note on today’s macroeconomic docket we turn the to Federal reserve on Wednesday and ECB on Thursday for guidance and insight into what the post COVID19 monetary policy landscape may look like.
0.6250 - 0.6530 ▲AUD/EUR:
0.5880 - 0.5990 ▲GBP/AUD:
1.8980 - 1.9420 ▼AUD/NZD:
1.0580 - 1.0780 ▲AUD/CAD:
0.8980 - 0.9130 ▲