- Australian Dollar (AUD) jumps as covid-19 downturn could be less severe than first thought
- Chinese demand for iron ore boosts price, lifting AUD
- US Dollar (USD) slips on safe haven outflows
- At 14:00 UTC, AUD/USD is trading +0.9% at US$0.6860
The Australian Dollar has risen sharply in recent days. The Aussie dollar has advanced 3.4% versus its US counterpart since Thursday on reopening optimism and rising iron ore prices.
At 14:00 UTC, AUD/USD is trading +0.9% at US$0.6860, the upper end of the daily traded range of US$0.6775 – us$0.6869 following the Reserve Bank of Australia’s monetary policy meeting and amid rising risk sentiment.
The RBA voted to keep monetary policy unchanged in its June meeting. Interest rates will remain at the historically low level of 0.25%. The central bank had tapered its bond purchases last month as the coronavirus infection rate declined and the financial markets stabilised.
RBA Governor Dr Philip Lowe offered support to the Aussie Dollar by saying that the coronavirus downturn won’t be as harsh as initially expected. His optimism was supported by a consumer confidence gauge which showed that moral increased for a ninth straight week as covid-19 cases declined and despite a looming recession.
Also supporting the Aussie Dollar has been the recovery in the Chinese economy, as it reawakens from the coronavirus lockdown. China’s demand for Australia’s mineral resources and more particularly iron ore has soared.
Iron ore prices have rallied recently to US$102 a tonne owing to China’s insatiable demand and disruptions in Brazil, another major iron ore supplier. Iron ore is one of Australia’s principal exports accounting for 16% of all exports in 20018 -19. Often when iron ore prices surge so does the value of the Australian Dollar.
Whilst the risk sensitive Australian Dollar is bounding higher, the safe haven US Dollar has been under pressure.
Investors have so far looked past worsening social unrest in the US, instead focusing on positive signs surrounding the global economy.
However, sentiment remains very fragile and could sour quickly amid increasingly violent protests and following a threat by President Trump to bring in the military to crush unrest on US streets.
There is no high impacting US data due to be released today. Investors will continue to watch developments in US cities closely, in addition to looking ahead to the US non-farm payroll later this week.
