Australian Dollar Continues to Outperform Other Major Currencies

First Covid-19 Economic Update Due This Week, What Could Happen to AUD Exchange Rates?

Since the middle of March when most countries went into lockdown, the Australian dollar has been making gains against sterling, the US dollar, and euro. This may surprise most, as commodity currencies tend to suffer in times of real uncertainty. In addition, the RBA gloomy outlook should be raising concerns for clients holding onto the Aussie. The RBA expect a 10% contraction for Q2 GDP and a 6% fall throughout the year. However, the Aussie continues to march on.

Why Has the Aussie Performed Well Against the Three Major Currencies?

Like all major nations the UK, US and European countries have problems of their own and these problems appear to be outweighing Australia’s. In the UK, Prime Minister Boris Johnson last night announced that he would be easing the lockdown slightly, but in reality most things are very similar and the media are reporting this morning that the messaging from the Government isn’t particularly clear. Mr Johnson’s first step of restarting the economy has started as he announced that anyone that couldn’t work from home should now go back to work, however the reality is most workplaces won’t have made the necessary arrangements to ensure their staff safety. With the death rate still high, I do not expect the pound to start to make gains against the Aussie as it appears that we are weeks or even months away before the economy restarts.

As for the US, again the amount of deaths is extremely high, but like the UK, President Donald Trump wants to restart the economy as soon as he can. A key talking point are the trade tensions between the 2 largest economies. The rhetoric from Donald Trump and Mike Pompeo in recent weeks will have made the trade talks even more difficult as both have stated they believe the virus was created in a Chinese Lab and China are to blame for the pandemic.

As for the Europeans, it was a tough week. A legal case could materialise as Germany threatened to block the European Central Banks purchase of German bonds. Germany continues to be the engine room of Europe and a fall out between the ECB and Germany in a middle of a pandemic, is a real concern for any client that holds euros.

Finally, the Australian dollar has gained value to risk sentiment. It appears that progress is starting to be made in the fight against Coronavirus and this is a good thing for the global economic outlook. But more importantly in Australia only last week just under 7000 cases had been reported and deaths were below 100. If you compare that with the UK, US or EU the amount of Australian people that have been impacted is far less, therefore could the Australian economy be performing to full capacity quicker than the other leading nations? There is a good chance.

What to Look out for This Week

Looking ahead, the major problems within the UK, US and EU are not going away, therefore we may see the Australia dollar hold its value against the three major currencies. However, this week Australia are set to release their latest unemployment numbers Thursday. Unemployment is expected to rise to 8.3% and forecasters are suggesting 550,000 jobs may have been lost due to the pandemic. These number are a concern for clients holding onto Australian dollars and are trading this week. If you need to sell Australian dollars short term, it may be prudent to look to trade before Thursday’s events unfold.

The other important data releases to look out for this week are the Home loan numbers released Monday evening for Australia, Inflation numbers Tuesday morning for the US, UK GDP Q1 numbers Wednesday morning European trade and employment change numbers Friday.

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