The Australian dollar has made somewhat of recovery over the last few trading sessions, pushing its way back up through the US60c mark over good news out of China surrounding the coronavirus.
China has pulled off a remarkable feat according to some analysts by containing the virus in some areas of the country which leads others to believe that the news may be too good to be true.
"Optimism returns in FX markets with high-beta AUD & NZD charging higher. Follows a green wave in Asian equities. News China is on the path to returning to some normality with Hubei province to remove travel bans tomorrow means Asia's COVID-19 economic cycle is close to a bottom," says Viraj Patel, FX and Macro Strategist at Arkera.
Although things are improving in China, the situation in Australia is becoming progressively worse and the country is now in virtual lockdown which is taking a huge toll on the local economy. This is expected to keep the lid on any more significant gains with regards to the Australian dollar.
There are now more than 2000 Covid-19 cases in Australia, and the number is expected to jump higher with specialists predicting that there could be more than 50,000 people infected by next month.
"We maintain that the risks to AUD are to the downside. A potential recession in Australia and in most of the large economies will bear down on commodity prices and AUD. Australia will implement more expansive shutdowns from tonight, further reducing economic activity," says Kim Mundy, a foreign exchange strategist at Commonwealth Bank of Australia (CBA).
Even after the coronavirus is long gone, which at the moment is virtually impossible to predict, the Australian dollar is set to be subdued for some time as Australia enters a deep recession and deals with the fallout of severe job losses and low commodity prices which is the backbone of the economy.
"The COVID-19 shock to the Australian economy will trigger a deep recession and a sharp spike in the unemployment rate, jumping to 11% by mid-2020. These widespread disruptions to the economy are on a scale that we have not experienced in recent times which has important implications for the labour market” says Bill Evans, Chief Economist at Westpac.
The unfolding economic recession is shaping up to be more severe than the GFC," he added.
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