Pound holders enjoyed more than a 1% rise throughout last week as rigid lockdown measures were reimposed in certain areas of Australia. This caused the markets to grow slightly wary of the wider implications for the country should these measures fail to prevent a second outbreak Downunder. In the scheme of things, it is quite interesting to see that despite new daily cases accelerating to over 270 in Victoria during yesterday’s trading, the Australian dollar has managed to hold its ground against its major currency counterparts. This theme potentially highlights 3 key factors that might prove to be the drivers for Australian dollar exchange rates in the weeks and months ahead.
The first of which is the country’s ability to contain the outbreak. It is worth remembering that scientists around the world commended Australia’s efforts in curbing the spread of COVID-19 in the spring.
The government’s ability to act quickly meant that the country was one of the first around the world to register no new daily cases. Since the decision to close the state border following the outbreak in Victoria, the Australian government still seem confident in their ability to keep the economy running, and given the lack of movement against the Australian dollar, for now, you could argue the market’s have faith too.
This could be tested this week by the story of new cases in Sidney which is rumored to have started at a busy pub often frequented by freight drivers traveling across the country from major city to major city.
AUD Resilience a Sign That Investor Confidence is Recovering?
The second potential driver is the gradual return of investor confidence globally. Historically when global trade conditions have been favourable, commodity-based currencies like the Australian dollar have benefitted greatly with investors drawn to riskier opportunities in search of higher returns. This was reflected perfectly back when the virus initially took hold, we saw investor confidence fall through the floor and the Australian dollar was quick to register multi-month lows. Since then we have seen a gradual recovery and despite the slight retraction last week, the general pricing tendency from the “riskier” currencies to that of resilience. It will be interesting to see how long this proves to be the case, particularly with the number of new infections and deaths in the US reaching astronomically high levels so far this month. The markets have so far been able to see beyond the US’ struggles to contain the spread across major states. At want point does investor confidence begin to sway once more?
Strong Trading Relationships Bolstering AUD Value
Finally, data releases also help form market sentiment and throughout the current quarter, there have been plenty of indicators that have helped support the Australian dollar’s value.
The pick up in demand of Australia’s leading export Iron Ore could prove particularly relevant. Australia was able to achieve record-breaking figures for the month of June. Should a true trend appear this factor could well hold the Australian dollar’s prospects higher on the international stage. One threat to this is the ongoing political standoff with China. As Australia’s leading trading partner and by far the largest recipient of Australia’s Iron ore, headlines of trade tariffs could weaken the longstanding relationships between the 2 nations at which point aud exchange rates might falter.
What Might Make the Australian Dollar Cheaper This Week?
This week might post further question marks for Australian dollar buyers to capitalize on. This morning, Japan’s industrial production figures posting yet another contraction might draw pressure to the AUD. If the output is low, a contraction in demand for Australia’s mining sector could slow at which point even fewer trading opportunities might be available. It will be interesting to see how China’s equivalent figures in the second half of the week come out too.
Furthermore, tomorrow’s consumer confidence release from Westpac might find itself in the spotlight particularly given the reimposing of lockdown measures. Investors might be looking for indications of a gradual recovery and prolific consumer spending will be crucial to this. As a result of the uncertainty across the jobs market likely to grow in the weeks and months ahead, consumers might continue to aggressively rather than support the economy. Thursday’s unemployment figures then could prove to be the main driver for AUD exchange rates as we end the week. If you do have an Australian dollar requirement, please register your interest using the form below. A member of our team will be happy to get in touch and discuss your requirements.