The Australian dollar was higher against the US dollar by Friday afternoon as short covering at decade lows helped the Aussie recoup earlier losses, helped by disappointing PMI data from the US including a shock return to contraction in services.
AUD/USD was higher by 18 pips (+0.26%) to 0.6633 with a daily price range of 0.6586 to 0.6636 as of 4pm GMT. AUD/USD fell in early Asian trading hours and was lower throughout the day until a pickup in the US afternoon session that saw it turn narrowly positive. Weekly losses stand at -1.21%.
The Australian dollar
The Aussie remains the preferred proxy in FX markets for coronavirus concerns, and the soft Australian employment data earlier this week has added fuel to the fire. The sudden shoot up in the number of coronavirus outside of China has seen sentiment sour again across markets. Economists are trying to predict the timing of the likely rate cut by the Reserve Bank of Australia. Analysts at ANZ have it pencilled in for Q2.
The flight to safety that has seen the Aussie hit new decade lows this week has been most clear in the 7-year highs struck in gold. The two assets have historically correlated because of Australia’s large market share in gold and other metal exports. But the correlation has completely broken down since the slowdown in China, the largest customer of Australia’s metal exports.
The US dollar
After a strong week, the dollar turned lower following some surprisingly disappointing manufacturing data. The data is particularly striking because the United States had been seen impervious to the uncertainty of the coronavirus. The data from Markit could be the first piece of data to show that is not quite the case. The Markit Services PMI for February fell to 49.4 from 53.4 previously. A level below 50 denotes contraction. Manufacturing narrowly avoided contraction but also saw a decline to 50.8 from 51.9 previously.
To complete the role reversal, data from France and Germany bettered expectations. Part of the appeal of the dollar has been the strong domestic economics when compared to dismal economic numbers in other developed economies.
