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  • Negative rates unlikely in Australia said RBA Governor Dr Philip Lowe
  • Australian – China trade tensions weigh on risk sentiment
  • US initial jobless claims inline with expectations at 2.4 million
  • At 14:45 UTC, AUD/USD trade flat at US$0.6597

The Australian Dollar is staging a recovery on Thursday, picking up from session lows to break even at the tine of writing.

At 14:45 UTC, AUD/USD is trading approximately flat on the day at US$0.6597. This is at the top end of the daily traded range of US$0.6549 – US$0.6599 as investors digested a mixed bag of US data and the latest commentary from Reserve Bank of Australia Governor, Dr Philip Lowe.

Speaking on Thursday Dr Philip Lowe warned that the economic recovery from the coronavirus crisis would be very slow without a medical breakthrough. On policy, Dr Lowe reiterated that it would be extraordinarily unlikely for the central bank to apply negative interest rates. His comments failed to lift the Aussie Dollar which slipped lower in the Asian and European session.

Concerns over escalating tensions between Australia and China weighed on risk appetite across most of the session. Relations between the two trade partners has deteriorated since Australia called for an independent inquiry into the start and spread of coronavirus in China.

China slapped 80% trade tariffs on Australian barely imports earlier this week. They also stopped buying meat from some Australia abattoirs.

Fears are growing that the trade tensions could spill over into the iron ore market, Australia’s most valuable export. China is the largest buyer of Australian iron ore, a reduction in purchases would impact the Australian economy and the Aussie Dollar.

Investors have shrugged off a mixed bag of US data. The US Dollar trades with a slight positive bias even as initial jobless claims data showed that an additional 2.4 million Americans applied for unemployment benefits in the week ending 15TH May. This was inline with analysts’ expectations.

As the US economy reopens this number should decline further. However, with social distancing measures, consumer anxiety and squeezed household incomes analysts are not expecting unemployment to drop as quickly as it spiked.

In a separate report, US manufacturing activity is expected to contract at a slower pace than initially expected in May. The Manufacturing PMI printed at 39.8 in May, up from36.1 in April. The level 50 separates expansion from contraction. The service sector rose to 36.7 up from 26.7.

All in all the data is pointing to a deep economic contraction in the second quarter and a long slow road to recovery.

 


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