The Australian and New Zealand Dollars are trading lower on Friday amid a drop in global risk demand that is helping to increase the U.S. Dollar’s appeal as a safe-haven asset. The sell-off is being fueled by ramped up hostilities between economic powerhouses – the U.S. and China.
At 10:20 GMT, the AUD/USD is trading .7075, down 0.0021 or -0.30% and the NZD/USD is at .6623, down 0.0010 or -0.16%. Despite the weakness, the Forex pairs are likely to hold on to their weekly gains.
Escalating US-China Tensions
In response to the abrupt closure of its Chinese consulate in Houston, Texas earlier in the week by U.S. officials, China hit back on Friday by announcing it was ordering the closure of the U.S. consulate in Chengdu, China.
“The current situation between China and the United States is something China does not want to see, and the responsibility rests entirely with the United States,” the Chinese foreign ministry said in a statement Friday. “We once again urge the U.S. to immediately revoke the erroneous decision to create necessary conditions for the return of bilateral relations to normal.”
Australian Investors Unnerved by Deteriorating Relationship Between US and China
The Australian share market fell on Friday, erasing a week’s worth of gains. The losses were led by a plunge in technology stocks, following similar moves on Wall Street overnight.
Surge in COVID-19 Cases Raising Doubts About Economic Recovery
The country is experiencing an acceleration in the number of new infections in the last few weeks, many of those concentrated in Victoria state – home to the second-most populous city Melbourne. The resurgence in cases led authorities to reinstate a partial lockdown on Melbourne.
“The biggest predictor of the economic outlook is the number of COVID-19 cases and what that means for lockdown,” she told CNBC’s “Squawk Box Asia” before the government released its budget update.
She explained that the states of Victoria and neighboring New South Wales account for more than half of Australia’s GDP, so further lockdowns would have a really big impact” on the overall economy.
It’s going to take a major shift in global investor sentiment to turnaround the AUD/USD and NZD/USD on Friday. I think bullish investors are content with their positions so I don’t think they are going to be willing to chase the currencies higher. Some may even think it’s time to pull in some profits, which would limit gains. Others would like to see a steep break into a value zone so they could add to their long positions.
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