Amidst all the global panic and financial disruption that the pandemic has brought this year, economic activity has taken a very sudden downward trend after the Australian government revealed that its national budget deficit had reached its worst levels since World War II with a fallout of A$86bn (£47bn). Despite these shocking developments, Treasurer Josh Frydenberg also announced that 2021 is looking even worse as the shortfall could breach A$184bn. It is not surprising that Australia had been hard-hit by the Coronavirus as the global economic stage is predicted to experience a 5.2% contraction in just this year alone according to the World Bank. It comes at a time when Melbourne witnessed its worst day for cases yet with 484 new infections. Like many countries are facing, restarting businesses and keeping economic output off the floor has been very challenging whilst there have been localised spikes in virus cases with many areas having to re-enter lockdown measures.
The near 500 new infections that Australia has seen recently is staggering considering that the country has only seen a total of 13,000 cases meaning that in just one day it received nearly an additional 4% of all cases in a day. This could mark a turning point for the Antipodean currency should the government not find suitable measures to enforced to reduce the R number which could soar if early action is not undertaken. However, what has been witnessed this year is many significant data releases or political news being announced which has had much smaller than expected currency movement mainly due to the fact that with so many nations globally being so significantly damaged from the virus, unprecedented statements and news reports have sometimes come with little to no aftermath on their currency strength. Many eyes now turn to Australia for their latest updates in the coming days has to how to proceed moving forwards.
Will the AUD Continue to Weaken Against the USD, EUR and GBP?
The reaction taken in the currency market recently is that many of its major currency counterparts have strengthened against the Australian dollar. The Australian dollar to Euro mid-market exchange rate had already been falling previously this week and now stands at a week-low of 0.61. The AUD to USD rate, which has been consistently gaining since March 19th has seen some resilience in the last few days but it is too early to say whether this is just a momentary hiatus for the antipodean currency’s strength, or if this recent financial development has turned the tide on the 4-month period of currency inroads. It currently resides at 0.707, up from the 0.57 in mid-March by a whopping 13 cents and thus, still one of the best times to buy up the AUD this year. Lastly, even the Pound, which has been at the detriment of many major currencies due to both the ravaging effects of the outbreak and the ongoing Brexit stalemate, has seen a recent burst of positivity with AUD to GBP rates tumbling 1.5 cents in two days. However, within these recent periods both currencies have been very rocky and their volatility has made it difficult to provide accurate predictions as to where certain currency pairings could be headed.
COVID-19 to be Driving Factor for AUD Rates Next Week
From an economic data viewpoint, it seems that most the currency movement will come from COVID-19 developments as it has been another quiet week with for the Australian dollar. The Reserve Bank of Australia’s Consumer Price Index for the manufacturing sector will be out next week Wednesday which is expected to remain relatively unchanged from its previous 0.5% reading to the forecasted 0.4% according to FX Street. This will not likely bring any volatility to the markets unless these figures fall away from expectations and so Tuesday could be a good point to evaluate your AUD trading positions considering the weakness experienced in the last couple of days.
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