Source: IG Charts
OUTLOOK: BEARISH
- Australian Dollar[1] selling pressure could swell amid fears of second wave of Covid-19
- Higher rates of infection in Beijing could send a chilling wind to Australian exporters
- Intensifying China-Australia political tensions could exacerbate a selloff in the AUD
Second Wave of Covid-19 May Dash Hopes of Speedy Recovery
The Australian Dollar may face heightened liquidation pressure if concerns about a second wave of coronavirus cases compels government officials to reinstitute or extend growth-hampering lockdown policies. With the United States as the newest epicenter – though Brazil has been catching up – a slower-than-planned reopening could undermine economic activity in the world’s largest economy.
Coronavirus Cases Globally
Source: Johns Hopkins
Consequently, a chilling effect may subsequently ripple[2] out and dampen appetite for cycle-sensitive currencies like AUD. Its commodity-linked nature makes its particularly vulnerable to oscillations in global sentiment, particularly during a time of almost-unprecedented uncertainty. However, even more worrisome are coronavirus-related trends sprouting in China: Australia’s largest trading partner.
Beijing Outbreak Rattling Market Confidence
In response to a flare-up of coronavirus cases in Beijing, government officials have increased restrictions on domestic travel to avoid having the virus spread to other cities and provinces. Deputy secretary-general of the Beijing municipal governmentChen Bei said both inbound and outbound travelers will be required to undergo several tests to ensure the safety of local residents.
While the first outbreak occurred at a wet market in Wuhan, officials have traced the second outbreak to Xinfadi, a wholesale food centre southwest of Beijing. Already reports are showing more infections in the area surrounding Xinfadi. This lends credence to the notion that the prospect of another shutdown – while not as severe as the first – may be implemented again and could further
