Aussie ends equity correlation, drifting lower as China reports new COVID19 cases
Monday 22 June, 2020
Daily Currency UpdateThe Australian dollar drifted lower through trade on Tuesday, giving up intraday highs above 0.6950 and slipping back below 0.69 US cents. The AUD failed to keep pace with equities as markets extended Monday’s bounce and instead succumbed to a broadly stronger USD. Currency movements were modest, yet the worlds base currency found support following a stronger than anticipated retail sales print, prompting the dollar index to jump two tenths a percent. IT was a strange session with equity markets rallying amid improving market sentiment, yet safe haven currencies were still well bid with both the JPY and CHF holding onto last week’s risk off gains. The divergence highlights the fragility of the recent AUD upturn. Having made three attempts to extend gains beyond 0.70 US cents the rally appears to have run out of steam for now, with a consolidation between 0.6680 and 0.6950 most likely.
Attentions turn to China and an outbreak in new COVID 19 infections in Beijing. The infection rate has spread rapidly to the outer suburbs with Beijing escalating containment measures in a bid to control the outbreak. This is the first significant 2nd wave since China began re-opening the economy and suggests a Chinese led recovery may prove out of reach for now. If conditions worsen in China and a second large scale lockdown is required, the AUD will likely suffer a broader correction and drift back toward 0.63/0.64.
Key MoversThe US dollar advanced through trade on Tuesday as risk sentiment improved amid an uptick in US retail sales and added monetary policy support from the Federal Reserve. US retail sales jumped the most on record in May, albeit from a historically low base, as consumers enjoyed the freedoms of a re-opening economy. The uptick in retail sales was supported by reports from the White House a new trillion-dollar infrastructure program will be introduced to stimulate domestic activity, while the Fed offered further insight into its corporate bond purchasing programme. The dollar index jumped 0.2%, forcing the Euro back toward 1.1250.
The Japanese Yen held onto last weeks risk off gains, edging marginally higher after the Bank of Japan promised fresh monetary policy support.
The Great British Pound ticked higher as labour market data showed the unemployment rate flattened, printing better than expected while Brexit talks appeared constructive. Having touched intraday highs at 1.2684 Sterling opens marginally lower at 1.2562.
Attentions remain squarely affixed to increased infections rates across China and the US. a correction in the outbreaks should foster renewed risk demand and bolster growth and commodity correlated currencies while a sustained 2nd wave will weigh on fears of a broader slowdown in the economic rebound and prompt a more meaningful push to safe haven assets. On a positive note an Oxford university study has shown that an existing drug (dexamethasone) has shone positive sings in alleviating the worst symptoms and reducing death rates among those most severely affected by the Coronavirus.
- AUD/USD: 0.6780 - 0.6960 ▼
- AUD/EUR: 0.6030 - 0.6180 ▼
- GBP/AUD: 1.7980 - 1.8420 ▲
- AUD/NZD: 1.0620 - 1.0730 ▼
- AUD/CAD: 0.9280 - 0.9420 ▼