Australian Dollar Fundamental Forecast, RBA, Covid-19, Commodity Prices – Talking Points:
- The approaching prolongation of coronavirus lockdown limitation in Victoria, Australia’s second largest state, could bushel a Australian Dollar.
- AUD could continue to trek aloft as a RBA shoots down unfamiliar sell involvement suggestions.
- A short-term pullback in commodity prices might drag on a trade-sensitive currency.
AUD Fundamental Forecast: Mixed
The Australian Dollar’s over 30% convene from a yearly low can be attributed to 3 categorical pushing factors; a Reserve Bank of Australia’s position on disastrous seductiveness rate policy, climbing commodity prices and comparatively successful health outcomes in comparison to other grown economies.
Victorian Lockdown Measures Likely to be Extended
However, a postulated swell of Covid-19 infections in Victoria, Australia’s second many populous state, and flourishing clusters in New South Wales and Queensland bluster to hindrance a risk-sensitive currency’s run to uninformed yearly highs.
With a state of Victoria recording a towering 723 cases on Jul 30, Premier Daniel Andrews is roughly certain to extend stream stage-three restrictions over a due 6-week timeline as “the stairs we’ve taken are not enough” to conceal a rarely spreading coronavirus.
Daily Cases of Covid-19 in Australia (March – July)
Source – Covid19Data
Stressing that there is no probability of “economic liberation unless and until we get these numbers down” Andrews, and Chief Health Officer Brett Sutton, are considering a probable deception of “New Zealand-style” lockdown measures as “nothing is off a table” after relocating to make mask-wearing imperative on Jul 19.
Considering stream restrictions are estimated to cost a internal supervision $1 billion a week, an prolongation of stage-three measures might drag on a opening of informal risk resources in a weeks to come. With a deception of ‘New Zealand-style’ restrictions approaching fueling a duration of poignant risk aversion.
RBA’s Stance on NIRP Underpinning AUD
The Reserve Bank of Australia’s position on Negative Interest Rate Policy (NIRP) has clearly underpinned a trade-sensitive banking as members of a executive bank “agreed that disastrous seductiveness rates in Australia sojourn unusually unlikely”.
Moreover, a RBA concluded “there is no box for involvement in a unfamiliar sell market, given a singular efficacy when a sell rate is broadly aligned with a elemental determinants, as during present”, with Assistant Governor Chris Kent stating that a Reserve Bank is “not overly concerned” by a new strength seen in a Australian Dollar.
Despite a weakening elemental backdrop Governor Philip Lowe and a cabinet are approaching to keep a executive money rate solid during 0.25% as a finish of a discussions “at a Jul Board assembly was that a best march of movement is to say a mid-March package and to continue to guard a effects of a pestilence on a economy.
To that end, a RBA’s wait-and-see proceed might continue to buoy a risk-associated Australian Dollar opposite a vital counterparts with a executive bank radically holding a shackles off a currency, assuring marketplace participants that a executive bank is “not formulation any choice policies during present”.
Market Implied Policy Rate for Australia
Data Source – Bloomberg
Commodity Prices Buoying a Trade-Sensitive AUD
As a commodity-linked currency, it comes as no warn that a GSCI commodity index’s 50% convene from a yearly low has mostly coincided with a Australian Dollar’s liberation from a Mar extremes.
However, a GSCI index has struggled to mangle above a sentiment-defining 200-day relocating normal (343.10) in new days, suggesting commodity prices might be due a short-term pullback.
Should that eventuate, a trade-sensitive AUD could remove belligerent opposite a vital counterparts.
On a other hand, a daily tighten above breakaway opening insurgency (346.8) might coincide with an prolongation of a Australian Dollar’s stand to multi-year highs opposite a haven-associated US Dollar.
SP GSCI daily draft combined regulating TradingView
— Written by Daniel Moss, Analyst for DailyFX
Follow me on Twitter @DanielGMoss