The Australian dollar continues to stun the market with its swift recovery from around US75c at the height of the coronavirus pandemic to the best part of US70c as of today a more than 25 percent gain, which many attribute to the Australia’s successful containment of the deadly virus, which now amounts to virtually no new cases, and the fact that the population were forced to stay at home and spend their money on the local market.
“This time last year, Australians were flooding the airports heading overseas selling their Aussie dollars in order to buy foreign currencies. Right now, all that money that would have been spent abroad is staying in Australia. It removes one source of selling the Aussie dollar.” Said Westpac senior currency strategist Sean Callow
Whether the Australian dollar’s strength can be sustained will probably be dictated by further prevention of the virus, as businesses begin to open up and crowds begin to gather which may run the risk of the virus reappearing if people don’t adhere to social distancing measures. It’s strength will also be decided by investors willingness to diversify into riskier assets
The Australian economy was expected to face the biggest recession in decades later in the year, and there was even speculation that the Reserve Bank of Australia would have to cut rates into negative territory to boost the ailing economy
Now those worries are starting to subside with the swift recovery and if the possibility of a no recession scenario gathers momentum with market participants we may see the currency break through US70c in the coming days
“In the near term, the AUD will remain supported, possibly breaching 0.70 as the market keeps its focus on positive news,” says Eugenia Fabon Victorino, head of Asia strategy at SEB in Singapore.
“The RBA’s clear aversion to pursuing negative rates provides a firm back stop to any downward correction to the currency.” He added.
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