- AUD/USD firm in the Asian open for the week.
- There will be a correlation in AUD to global commodity prices pertaining to COVID-19.
- Continued RBA stimulus expected to soften the economic impact of COVID-19.
AUD/USD has popped during the open on Monday in Asia in what are the most volatile markets since the Global Financial Crisis pertaining to COVID-19, pressuring the central banks to action stimulus. At the time of writing, AUD/USD is trading at 0.5813 at the time of writing within an opening range, so far, of between 0.5804 and 0.5825.
The major news of the day, so far, apart from the rising number’s of COVID-19 cases throughout the world which has put nations on effective economic lockdowns, is with the Reserve Bank of New Zealand, (RBNZ). Due to the COVID-19 threat to the nation’s economy, the RBNZ announced that it would conduct large-scale asset purchases of New Zealand Government bonds following similar moves by global central banks last week.
RBA softening the COVID-19 economic blow back
In Australia, the RBA purchased $5 billion in ACGBs taking its first step into the world of Yield Curve Control. “As Australia moves to shut down places of gathering and some state and territories close borders, another $45.5bn of fiscal measures were deployed,” analysts at ANZ Bank explained.
“The Commonwealth Government’s package, which will create a budget deficit of at least $30bn in 2019-20 (and more in 2020-21), is targeted at low income households, sole traders, SMEs and airlines. It will make an important difference, but will not offset the economic consequences of the pandemic.”
In a flight to safety, the US dollar is pulling in the bid which came within 1 pip of the 103 handle last week in the DXY, pressuring the dollar-bloc currencies, including AUD, -17% month to date vs the US dollar. The degree of the shock to the global economy remains very hard to measure and the situation remains highly fluid. There is a risk that heightened uncertainty is with us for some time which should equate o high volatility in the FX space.
The AUD outlook remains tied to global sentiment, with near-term risks tilted to the downside. Given how AUD’ trades as a proxy to global trade, there will be a correlation to global commodity prices, especially iron ore and copper. Copper dropped in its biggest weekly fall in more than eight years as the reality of the economic impact of COVID-19 hit, capping AUD’s correction from the 0.5660s to a high of 0.5985, helping to pressure AUD/USD back to 0.5746.