COVID-19 spread weighing on hopes for swift recovery

OFX Daily Market News

Posted by OFX

AUD – Australian Dollar

The Australian dollar crept marginally higher through choppy trade on Thursday as investor attentions remain squarely affixed to the largely unchecked spread of COVID-19 throughout the US, Latin America and South Africa. Having touched intraday lows at 0.6851 the AUD edged upward to mark session highs at 0.6890, but struggled to break outside the 40 point range despite a number of short run upward rallies. Markets appeared reluctant to extend gains across commodity currencies and risk assets, leaving equities, the AUD, NZD and CAD mostly flat on the day.

The re-emergence and rapid spread of new Coronavirus cases across the US has spooked investors, dampening expectations for a swift rebound in economic activity. With the US recovery interrupted, investors are coming to terms with the realities of the current environment and a long/protracted rebuild. The risk on/risk off battle of the past fortnight is starting to tip toward a broader risk-off move with haven assets finding increased support. Equities lost 1.5% through early trade before regulatory change in the US meant a freeing of capital for US banks, prompting a jump in financial stocks that propped up the S&P 500.

As sentiment plays an increasingly important roll in short-term direction our focus remains with broader equity performance as a marker of investors’ appetite for risk. A deeper risk-off move will likely put pressure on short-term supports at 0.6830/40 and could see the AUD retreat back toward 0.67 and possibly 0.66.

Key Movers

The US dollar crept higher through trade on Thursday when measured against a basket of major counterparts, up two tenths of a percent and closing in on four week highs as concerns surrounding a coronavirus resurgence pushes investors toward haven assets. The rapid spread of new infections across a swathe of US states, with Texas and North Carolina forced to suspend plans to re-open their economies and instead impose new measures to try and control their respective outbreaks, has prompted investors to begin re-assessing expectations for a prompt rebound in economic activity. Even if other State and Federal officials continue with the wider economic opening, activity through the short-term is likely to be muted and the recovery process slowed. This fact is beginning to weigh on investors and we are seeing the beginnings of a shift in broader sentiment. A sustained risk-off shift will likely see the USD find renewed short-term demand as markets unwind risk plays.

The GBP is lower this morning after the UK’s Chief Brexit negotiator refused to agree to a compromise on tariffs. While the focus remains largely with the battle against the coronavirus, there is still a long way to go before the UK leaves the EU at the end of the year and further delays/setbacks in divorce negotiations are adding further downward pressure on the GBP. Having slipped below 1.24, the GBP appears well supported on moves approaching 1.2350 for now, but a sell off in risk could prompt a move back toward 1.22 and 1.20.

Expected Ranges

AUD/USD: 0.6830 – 0.6960 ▲

AUD/EUR: 0.6030 – 0.6180 ▲

GBP/AUD: 1.7920 – 1.8180 ▼

AUD/NZD: 1.0650 – 1.0720 ▲

AUD/CAD: 0.9350 – 0.9420 ▲


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