Why is the Australian Dollar Getting Stronger?

AUD GBP Lower Ahead of PMI Data for the UK Economy

Australian dollar exchange rates have continued to stall across major currency pairings as financial markets brace themselves ahead of fears of a second spike in cases. It didn’t help market jitters that the government was forced to shut state borders between Victoria and New South Wales for the first time in a century as a result of a reacceleration of new cases in Victoria.

This has lead many to question where the Australian dollar’s resilience is coming from with marginal gains seen throughout the month of June and into this month against the euro, pound and US dollar.

AUDEUR remains range-bound in the 0.61s although slightly higher than the end of last month when questions were asked as to whether or not it would slip below 0.60. This morning’s worrying signs from Germany’s key industrial sector could help the AUD continue it’s climb. The industrial production release measuring output across German factories and mines posted a remarkable drop by 19.3% in the month of May. These figures may well draw further speculation around the European Central Bank’s stimulus program once again. It will be interesting to see if this is alluded to within tomorrow morning’s European Commission Economic Growth Forecasts at which point added volatility could be on the cards. If you are looking to buy euros with Australian dollars and would like to plan around this release you can register your interest on the link below. Of course, Thursday’s import/export data from German could also be worth monitoring too.

Against the pound, the Australian dollar is trading in the higher end of the 0.55s on interbank rates but has been equally range bound. The Australian dollar has managed to continue a slow and steady rise since the start of June from the low 0.54s however. Against the US dollar, the Australian dollar has managed to hold its ground above the 0.69 mark since the start of the month, although this could be tested as the week goes on, particularly given yesterday’s positive output, job data, and new order levels from the US manufacturing levels.

Positive Communication From the Government Making the Australian Dollar More Expensive

Despite the fact 6.6 Million residents of Victoria will be forced to be shut off from the rest of the nation as a result of the resurgence in cases, communication from the Australian government remains positive. Furthermore, the Reserve bank of Australia confirmed overnight that they will be holding interest rates at the record lows of 0.25% reiterating their cautiously optimistic outlook for the Australian economy as the year goes on. Governor Philip Lowe hinted to the gradual reopening of the economy should negate the need for extra stimulus across sectors, as consumer spending should naturally rekindle.

Added AUD Resilience From Signs of Quick Rebound?

Japanese Leading Economic Index release surprised the markets overnight with strong short term indicators suggesting a fruitful trading relationship with Australia’s second-largest trading partner. The release will have been well received by Australian dollar holders, particularly after Monday’s fall in consumer spending by over 16%. Along similar lines, it will be interesting to see if Thursday’s inflation levels from China show further signs of promise which in turn could bolster the Australian dollar’s prospects further. Chinese inflation has registered severe drops like most countries across the globe since February of this year however early signs of renewing consumer confidence could lead to the start of a reversal of this trend.

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