Australian Dollar US Dollar (AUD/USD) Exchange Rate Edges Higher as USD at the ‘Mercy’ of Risk Appetite
UPDATE: The Australian Dollar US Dollar (AUD/USD) exchange rate edged around 0.4% higher this afternoon. This left the pairing trading at around $0.6967.
The US Dollar slipped on Wednesday afternoon after investors weighed up hopes for a swift economic recovery.
Risk appetite increased slightly, boosting the ‘Aussie’ against the Dollar as Marshall Gittler, BDSwiss’ head of investment research said:
‘[The Dollar] is generally at the mercy of risk sentiment – which seems to be taking a turn for the worse.
‘I think in the absence of any news pro-growth news, the virus count will be the one statistic that pops out from everyone’s screens.’
Australian Dollar US Dollar (AUD/USD) Exchange Rate Muted as Fed Comments Weigh on Sentiment
The Australian Dollar US Dollar (AUD/USD) exchange rate remained flat this morning. This left the pairing trading at around $0.6940.
The US Dollar remained flat against the Australian Dollar on Wednesday, as the US currency held onto earlier gains.
The resurgence of coronavirus cases in the United States and the return of lockdowns in some countries has weighed on risk appetite.
Added to this, risk sentiment was further undermined after dovish comments from Federal Reserve policymakers. Fed officials said the rising number of Covid-19 cases could hurt economic growth just as the stimulus measures start to fade.
Three Fed officials expressed concern that the rise in infections threatened to dampen consumer spending and job gains. Added to this, one policymaker pledged to offer more support in the future.
According to Yukio Ishizuki, foreign exchange strategist at Daiwa Securities:
‘The mood changes day by day, but the dollar looks to be supported for now as investors turn more cautious about the virus.
‘The Fed’s comments on the economy sound sombre. There’s reason to worry because it is hard to see when the virus will be brought under control.’
Australian Dollar (AUD) Struggles Thanks to Melbourne’s Lockdown
The Australian Dollar was little changed on Wednesday, still reeling after Tuesday saw lockdown measures were re-established in Melbourne.
Sentiment suffered after Australia’s second largest city reimposed lockdown measures to help tackle a rise in coronavirus cases.
AUD struggled as a hard lockdown in the city could erase close to A$5 billion of economic output over the six-week shutdown.
This would slow down the broader national recovery from the coronavirus crisis and force the government to expand stimulus.
So far, Australia has been one of the most successful countries in curbing the spread of the virus. However, the most recent lockdown has dented hopes for a speedier economic recovery.
In a note, Deutsche Bank economist Phil Odanaghoe wrote:
‘Our initial sense is that the re-opening reversal stemming from the lockdown will see the economy surrender some – but not all – of the better than expected trajectory.’
Added to this, the latest lockdown has caused Westpac to downgrade its growth forecasts for the country’s $2 trillion economy. Westpac now expects a -4.2% contraction compared to a previous -4% slump.
Westpac’s Chief Economist, Bill Evans said:
‘The events in Melbourne highlight the risks to this scenario around the containment of the virus; other shutdowns; and the inevitable savage loss in confidence were that to occur.’
Australian Dollar US Dollar Outlook: Latest US Jobless Data in Focus
Looking ahead to Thursday, the Australian Dollar (AUD) could make gains against the US Dollar (USD) following upbeat home loans data.
If Australia’s home loans rebound in May after slumping due to the coronavirus crisis, it will offer the ‘Aussie’ an upswing of support.
However, these gains could soon be reversed as traders focus on the latest US initial jobless claims which are expected to remain at significantly high levels.
Jobless data from the world’s largest economy is expected to show an unprecedented number of Americans losing their jobs. This will send the Australian Dollar US Dollar (AUD/USD) exchange rate lower.