• Australian Dollar (AUD) slips as state of disaster declared in Victoria amid rising covid cases
  • RBA not expected to adjust monetary policy, could adopt a more cautious tone
  • US Dollar (USD) rallies after ISM Manufacturing PMI beats expectations and new orders surge
  • Investors look ahead to ADP private payroll data on Wednesday ahead of US non-farm payroll

The Australian Dollar US Dollar (AUD/USD) exchange rate has trended lower across the session on Monday. After gaining 0.5% across the whole of the previous week, the pair has wiped out those gains and more on Monday. At 14:00 UTC, AUD/USD trades -0.8% at US$0.7088. This is towards the lower end of the daily traded range.

The Australian Dollar started the week on the back foot after the state of Victoria declared a state of disaster amid rising coronavirus cases.

Investors will now look ahead to the Reserve Bank of Australia’s monetary policy meeting.  Recent Australian data has been encouraging with both the labour market and retail sales showing signs of recovery although deflation could prove to be a concern.

The minutes from the previous meeting confirm that the economic downturn caused by covid 19 hasn’t been as harsh as initially feared. Even the recent PMI figures point to a solid recovery.

However, since then a second wave of coronavirus has broken out in the state of Victoria. resulting Melbourne, Australia’s second largest city has gone back into lockdown. The health crisis in Australia appears to be heading in the wrong direction and that is a huge threat to the fragile economic recovery.

For this reason, despite improving macro data there is a good chance that the RBA will adopt a more cautious tone. This could drag the Australian Dollar lower.

The US Dollar has risen on the first day of August after a terrible performance across July; the worst monthly performance in a decade.

The US Dollar has jumped following upbeat manufacturing data. The ISM manufacturing PMI jumped to 54.2 in July, up sharply from June’s 52.6. New orders smashed expectations support the up tick. The data calmed fear that the US economic recovery is being hampered by the rising coronavirus cases across the sunbelt.

Investors will now look ahead to ADP private payroll report on Wednesday ahead of Friday’s non-farm payroll. More strong data could help the US Dollar recover some of July’s losses.