Australian Dollar Strength Continues as Chinese Stocks Bounce

US Dollar Remains Close to Multi Year High Against the Australian Dollar

The Australian Dollar continued its gains from Monday as the market priced-in the effects of a relaxed Reserve Bank of Australia (RBA), which had kept its Official Cash interest rate on hold at 0.75%.

The GBP to AUD exchange rate dropped to close near 1.9330 after touching a low of 1.9254.

Commodities Are Still Mixed Amid Coronavirus Uncertainty

The Australian dollar can often show a positive correlation with the fortunes of gold and the precious metal has been on a rally since December of 2019, moving from prices near $1475 to $1600. This dynamic has stalled in the last couple of days as the price has dropped from around $1590 to $1560 and this could be bearish for the Australian dollar if the trend continues and markets take notice.

One of the positives for the Australian dollar gains in the last two days has also been a recovery in the Shanghai Composite Index. China’s key stock market index had fallen from 3125 to lows near 2700 over fears that the Coronavirus would escalate.

The stock index has since corrected over the last two-three days and now trades near 2820, although the price move from Thursday to Friday last week has created a gap from 2975 and if stocks are unable to move higher there may be further lows ahead for Chinese stocks.

Confusion still reigns over the true effects of the virus on Australia’s key export partner and some speculate that authorities are downplaying the severity of the problem in order to promote stability. Despite this, we have seen large cities on lockdown and Macau has now moved to close its casinos for two weeks, so the effects to China’s economy and the surrounding area is still unknown.

Governor Lowe Provides the First Round of Policy Hints

The Reverse Bank Governor Philip Lowe spoke in Sydney this morning ahead of his semi-annual testimony to the Parliamentary Committee and traders will watch for clues on the RBA’s future policy actions.

Analysts are already warning that the Australian economy could see its first quarter of negative growth due to the double effect of the recent bushfires and China’s virus. Dr Lowe used the Sydney address to urge further investment to stimulate the economy ahead of any fundamentals.

The governor said that the bank expected the fires would cut GDP by 0.2 percent while the drought would hurt growth by 0.25 per cent through the year so any change to this outlook will drive the price of the Australian dollar in 2020.

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