The Australian and New Zealand Dollars closed higher last week on stronger demand for higher-yielding currencies although gains were likely limited by fears that a resurgence in coronavirus infections would slow down the global economic recovery.
The Aussie and Kiwi were also boosted by a weaker U.S. Dollar, which fell as improving economic data dampened its appeal as a safe-haven asset.
The price action was mostly driven by risk sentiment, which resulted in a choppy, two-sided trade before prices turned slightly better for the week. There were no major economic releases, which led to the mostly sideways-to-higher trade.
RBA Leaves Cash Rate at 0.25%
The Reserve Bank of Australia (RBA) kept its benchmark interest rate unchanged at 0.25% at its latest policy meeting, as the country continues to grapple with the fallout from the coronavirus pandemic
Although the economy is performing better than expected, policymakers once again urged the government to maintain fiscal support for households and businesses, which is scheduled to expire in September.
Meanwhile, RBA Governor Philip Lowe acknowledged that there have been some positive developments – including a pick-up in retail spending – but the overall economic outlook remains uncertain and “recovery is expected to be bumpy.”
In the post-meeting statement, Lowe said the country was going through a “very difficult period” and experiencing its largest economic contraction since the 1930s.
Melbourne Returns to Lockdown as COVID-19 Cases Surge
Five million residents of Melbourne, Australia have been told to stay home for six weeks, amid a surge in coronavirus cases.
Victoria State Premier Daniel Andrews announced the lockdown after the state saw 191 new infections, its highest daily number since the pandemic began.
“We are on the cusp of something very, very bad if we don’t take these steps,” Mr. Andrews said. “I think a sense of complacency has crept into us as we let our frustrations get the better of us.”
We’re likely to see more choppy trading this week as the bullish traders react to the upside momentum driven by demand for risk, and the bears feel the influence of a resurgence in COVID-19 cases.
Ultimate, the direction of the Aussie and Kiwi will be determined by the movement in the U.S. Dollar, which is also going to be manipulated by a rosy outlook for a V-shaped recovery based on stale economic data, and the growing threat that a second-wave of coronavirus cases will lead to further shutdowns and damage to some parts of the economy, particularly the labor force.
Generally speaking, a failure to contain the spread of the virus could plunge the economies of the United States, Australia and New Zealand back into hibernation – and potentially deal a greater blow to consumer and business confidence than the initial outbreak.
For a look at all of today’s economic events, check out our economic calendar.