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Extended COVID-19 Restrictions Hampers AUD’s Recovery

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The economic recovery and any potential upside for AUD are hampered as Premier Dan Andrews decides to extend stage-four restrictions in Melbourne, Australia’s second largest city. 

In Victoria, Andrew’s proposed “reopening roadmap” would only completely emerge from coronavirus-enforced restrictions on November 23, only if the region is able to record new infections “for the two weeks prior”. 

However, this method was questioned by Prime Minister Scott Morrison, stating that “What I can’t help but be struck by is that, under the thresholds that have been set in that plan, Sydney would be under curfew now”. 

Morrison’s sense of disapproval of the Premier’s roadmap seems understandable give then the economic impact of lockdown measures on a state that accounts for “about a quarter of the national economy”, according to Treasurer Josh Frydenberg. 

Therefore, with current restrictions estimated to cost the local government more than $1 billion a week and the Victorian unemployment rate falling to 7%, the numbers may dictate the near-tern outlook for reginal risk assets.  

Reserve Bank of Australia’s Wait-and-See approach 

The Reserve Bank of Australia’s current approach to monetary policy has seemingly shackled hopes of recovery of the local currency against its major counterparts, as policymakers dismiss the potential implementation of a negative interest policy and opt to keep the official cash rate at its effective lover bound of 0.25%. 

However, the suggestions “the board will maintain highly accommodative settings as long as is required and continues to consider how further monetary measure could support the recovery” could indicate that the RBA is looking to build on its decision “to increase the size of the Term Funding Facility and make the facility available for longer”. 

What those “further monetary measure” may look like is relatively unknown given the central bank already utilizes yield curve control (YCC) and has been openly dismissive of the effectiveness of foreign exchange intervention. 

TECHNICAL OUTLOOK 

On the daily chart of AUD/USD, the price opened at 0.725 and currently going up until 0.727. The Aussie bulls are a little aggressive on this week’s closing day.  

However, the resistance is yet to be broken at 0.741 and the price may still hover inside this resistance and the support at 0.713. Speculations of the pair hovering inside this channel are making investors indecisive on this currency pair especially with the ongoing recession and COVID-19 restrictions that are yet to be implemented. 

Until then, most traders and investors will stay on the sidelines until a breakout from either resistance or support will give them a further confirmation of a possible shift on the trend. We can expect less volatility for the pair as the price might continue to hover inside this channel for a longer period. 

For the past week, investors and traders have been looking at US dollar as a safe heaven as dollar regains strength despite negative news from the Fed’s and the Central Bank. The current negative outlook of Australia’s economy has also scarred the local currency as it holds footing against the US dollar. 

 

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Risk Disclaimer:  

Information on this page is solely for educational purposes only and is not in any way a recommendation to buy or sell certain assets. You should do your thorough research before investing in any type of asset. Learn to trade does not fully guarantee that this information is free from errors or misstatements. It also does not ensure that the information is completely timely. Investing in the Foreign Exchange Market involves a great deal of risk, resulting in the loss of a portion or your full investment. All risks, losses, and costs associated with investing, including total loss of principal and emotional distress, are your responsibility. 

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