- Australian Dollar (AUD) surges amid risk on trading following EU stimulus package & encouraging vaccine update
- No surprises from the RBA or Dr Lowe and the downturn wasn’t as bad as initially feared
- US Dollar (USD) extends losses amid safe haven outflows
- Congress to continue debating additional US stimulus
The Australian Dollar US Dollar (AUD/USD) exchange rate has soared to fresh yearly highs of US$0.71 on Tuesday. At 13:45 UTC, AUD/USD trades just mildly off the high at US$0.7090 on its third straight day of gains.
The Australian Dollar started the week on the front foot and has continued on a firm footing, reaching its best level since July 2019.
There were no surprises from the Reserve Bank of Australia’s minutes from the July monetary policy meeting. Policymakers are happy to leave monetary policy measures steady for as long as needed. The RBA did not discuss the flare up in covid cases in the state of Victoria or the lockdown in Melbourne and its economic impact.
The central bank confirmed that the risks to economic growth remained skewed to the downside. However, on a more upbeat note policy makers also affirmed that they believe that the worst of the downturn has passed and that it wasn’t as severe as initially feared.
RBA Governor Dr Philip Lowe said in a speech overnight that he was happy with the Australian Dollar’s valuation and that he saw no reason to intervene in the forex market to push down Aussie Dollar’s value.
Away for the domestic market the broad risk on sentiment across global markets was also supporting the Australian Dollar. Risk appetite has risen on the back of vaccine optimism and additional fiscal stimulus after the EU leaders finally agreed to a €750 billion rescue package to guide the region through its deepest recession since World War 2.
A vaccine update yesterday from Oxford University and AstraZeneca was considered to be encouraging. 100% of those given the vaccine candidate produced an immune response and crucially there were no adverse side effects.
As the mood in the market has improved so has demand for the riskier Australian Dollar. Meanwhile the US Dollar has fallen out of favour as investors are no longer seeking its safe haven properties.
There are no significant data releases from the US in the US session. Congress will continue debating a rescue package to boost the US economy.
