Having dropped to more than a decade low versus the EUR on 19th March the Australian dollar has been steadily increasing in value and has been consolidating around 0.5550 during today’s trading so far. This represents an increase in value for the Australian dollar from its 0.506 lows on the 19th March of almost 10pc versus the euro, a significant improvement in the Aussie’s favour.
Having seen a significant flight to safety amongst investors over previous weeks the Australian dollar was aggressively sold as markets struggle to make sense of the speed at which Covid-19 has spread and the lasting impact this will have on the global economy. As central governments across the World act to support their economies such as the $2 trillion investment in the US these fears have been, to some extent, calmed and the Australian dollar has benefitted significantly in a renewed appetite to more risky assets.
The Euro Weakens Following a Strong Performance of Aussie Dollar
In direct contrast to the Australian dollar the euro has been performing well over recent weeks as a steady inflow of capital continues in to the Bloc. Having been a dominant funding currency over recent months due to very low interest rates, a lot of the activity in recent weeks has seen loans repaid as riskier assets are sold off and the money is returned.
As Spain announces further extensions to their lockdown and Italy continue to battle agaisnt Covid-19 the economic concern over such stark business activity is arguably now taking effect on the single currency.
This morning we have seen that this uncertainty is hitting both business and consumer confidence hard as the eurozone suffered it’s largest loss of confidence in a single month as a result of the tight measures in place to stem the spread of the coronavirus.
The European Commission on Monday said its Economic Sentiment Indicator (a measure of sentiment among companies and households) fell to 94.5 from 103.4 in February, the largest drop since the series began in 1985. This reflects the previous largest decline seen in 2008 on the back of the collapse of Lehman Brothers as the financial crisis began to unfold.
Australian Government Steps up It’s Support Package
As the number of reported cases of coronavirus continue to increase Scott Morrison the Australian Prime Minister announced a $130bn aid package on Sunday evening paying $1500 fortnightly wage subsidy and expanding the scope of unemployment benefits. This will bolster confidence that the Australian economy remains ‘open for business’ as it’s largest trading partner China reopens for business. This will have contributed to the strength in the currency seen today.
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