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Australian dollar on the rise as focus shifts back to pandemic

Chris Lee

The risk-focused Australian dollar appeared to surge in the foreign exchange markets as trading got underway in earnest on Monday morning.

The development came as the forex markets began to switch their attention almost in full to the recovery process from the coronavirus pandemic.

This came despite the fact that tensions between the US and China appeared to be continuing to bubble under the surface.

The Australian currency was up by an entire percentage point in its pair against the US dollar and appeared to reach $0.6742 at one stage.

The currency’s performance is often interpreted as a barometer of risk attitudes across the foreign exchange markets, especially as it pertains to China – which is one of Australia’s primarily trading partners.

In the current context, this reflected the news that China’s recovery from the pandemic appears to be getting stronger and stronger.

It appears, for example, that factory activity in China is now on the rise despite the country’s economy having taken a battering during the pandemic.

A release of the Purchasing Managers Index from Caixin/Markit Purchasing Managers revealed a small boost in Chinese factory activity across May.

The Aussie dollar’s surge seemed to occur despite the fact that China continued to be embroiled in a row with the United States on a number of issues – but especially that of Hong Kong, where US objects to China’s imposition of a new security law there.

However, the Aussie’s rise may have occurred in part because President Donald Trump in fact avoided retaliating against this on Friday.

He made the decision to avoid adding additional tariffs on China when he spoke about the issue on Friday – a move which led to relief for many forex traders, and which led to analysts appearing to conclude that the short-term risk of a trade spat had been neutralised.

Elsewhere around the world, the US dollar was down to a position close to its worst for 11 weeks in its index.

The index is an artificial tool used by traders to assess and monitor the dollar’s ups and downs compared to several other currencies from across the globe.

It fell by a fifth of a percentage point at one stage, reaching 98.031.

The US is also facing domestic political problems of its own.

Demonstrations have broken out in cities across the country in protests on the topic of police brutality after a much publicised incident in the city of Minneapolis in which an unarmed black man was killed by police despite being in custody and not resisting arrest.

In New Zealand, the dollar there was up by half a percentage point.

It was the nearby Australian dollar that appeared to be the leading winner of the day.

Whether the next meeting of the Reserve Bank of Australia on Tuesday will make any difference, however, remains to be seen.

Currently, there is a perception that no changes – and probably no negative interest rates – will be instituted.

 

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Chris Lee
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