The Australian dollar was higher against the US dollar on Monday afternoon in a let up from the intense selling that has struck the Aussie since the outbreak of the coronavirus in China.
AUD/USD was higher by 7 pips (+0.1%) to 0.6698 with a daily price range of 0.6684 to 0.6707 as of 3pm GMT. Trading has been choppy around major support at 0.67 with the currency pair trying to carve out a bottom just above the one decade-low made last year at 0.667.
AUD/USD – The Aussie lost 2.01% against the greenback last week
This is a fifth consecutive weekly loss that took the exchange rate towards the lowest in a decade. The Aussie is heavily oversold and may be due a statistical rebound purely off the basis of such a long stretch of weakness.
The Australian dollar has been used a as a proxy for concerns about the coronavirus outbreak, especially while markets in China were closed. The reopening of Chinese markets saw a wave of selling that sent the CSI 300 index down by over 7%. The selling in China, where the virus is concentrated might have been a source of relief for Asian currencies and the Aussie which stabilised against the US dollar.
The signs of a bottom in the Australian dollar come just ahead of the meeting of the Reserve Bank of Australia (RBA) tomorrow. It is generally thought that the surprisingly strong employment data for December and inflation that has been rising in the past four quarters should steer the RBA away from taking any action. A rate hike would probably not be appropriate given the headwinds of the bushfires and the coronavirus facing the economy, but a rate cut would be seen by many as full hardy given the strong data.
The US dollar
The US dollar finished last weekly strongly against the Aussie but was mixed against other currencies after the Federal Reserve opted to keep interest rates steady in January. Later Monday, the ISM Manufacturing PMI is expected to pick up to 48.5 in February from 47.2 in January, which was the lowest since June 2009.