The Australian dollar was up against the US dollar on Wednesday with the greenback still hovering near yesterday’s lows following the emergency US rate cut while talk of fiscal stimulus in Australia is giving the Aussie a boost.
AUD/USD was higher by 29 pips (+0.43%) to 0.6610 with a daily price range of 0.6576 to 0.6629 as of 5pm GMT.
AUD/USD slide below 0.66 in early trade but later rallied back to just short of yesterday’s high. Weekly gains for the exchange rate stand at +1.52%.
The Australian dollar
A strategy to both lower interest rates and raise government spending continue to attract traders back to the Australian dollar, particularly as other countries consider cut interest rates too.
Australian Treasurer Josh Frydenberg said there will be “targeted fiscal measures” which could include a business investment allowance. Support for areas of the economy most exposed to the virus outbreak makes sense and can avoid unnecessary pain for businesses unable to prepare for such a big external shock.
The Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle told the Australian parliament that the RBA could do just one more rate cut before turning to quantitative easing (QE). He predicted the fall in services exports due to coronavirus would cut about 0.5% off Australian GDP in the first quarter of 2020.
The US dollar
Wall Street was higher, the dollar was off yesterday’s lows and the yield on 10-year US Treasuries rose back above 1% on Wednesday. Some of the credit for the turnaround owes to the return of former VP Joe Biden as a big contender for the Democratic Party’s Presidential nominee. He is more of a moderate than socialist Bernie Sanders and has no plans for a national healthcare service, which aided pharmaceutical shares.
There is still some reticence about the Fed’s emergency rate hike, but it is already starting to look less extreme after the Bank of Canada lowered its overnight rate by 50 basis points to target 1.25%. The bigger cut of half-a-percentage point matches the move made by the Fed.
