22nd June 2020 - AUD outlook bearish on concerns of second wave of Covid-19

Good Morning,

Market Headlines

Demand for safe havens rose and global equity markets turned south on Friday as coronavirus cases continue to rise, rekindling fears of a deadly second wave of the pandemic. Fed, ECB, BoJ, BoE and SNB agreed to reduce the USD swap facilities instated at the height of the pandemic fears from daily to two to three times per week. UK’s BoE also stated that it was reducing domestic liquidity facilities. Both were being reduced due to normalisation of conditions and fully functioning markets. The S&P500 finished 0.6% lower on the day, with bond yields and risky currencies also slightly lower. On the commodities front, Brent rose 1.6% to $42.20, copper rose 0.9%, iron ore rose 0.2% to $102.65, and gold rose 1.2%


US dollar index finished up 0.2%

EUR declined from 1.1220 to 1.1168

USD/JPY ranging between 106.75 and 107.05

AUD dropped from 0.6875 to 0.6830

NZD ranged between 0.6425 to 0.6401

AUD/NZD ranged between 1.0695 to 1.0660

AUD Thoughts

- Australian Dollar selling pressure could swell amid fears of second wave of Covid-19

- Intensifying China-Australia political tensions could exacerbate a selloff in the AUD

Traders may now keep eyes on the speech by the RBA Governor Lowe, speaking on peak of the “Global Economy and COVID” at the ANU Crawford Leadership Forum. PBOC interest rate decisions will also be watched today as the Chinese central bank has already cut the 14-day reverse repo in a surprise move during the last week and might not refrain from altering the benchmark interest rate from 3.85%. Should the RBA leader manage to strike an upbeat tone, coupled with PBOC’s no rate change, the AUD/USD might keep 0.6800 threshold.

The pair’s break of 21-day SMA, currently near 0.6835, seem to drag it towards the last week’s low near 0.6775. However, 200-day SMA surrounding 0.6665 might challenge the bears afterward.

Event Risk Data Today

Australia: RBA Governor Lowe speaking at ANU Crawford Leadership Forum at 9am on the Global Economy and COVID

NZ: May credit card spending

Euro Zone: Consumer Sentiment (market forecast of a modest improvement to -15.0%) coming from easing of restrictions and strong policy support.

US: Chicago Fed Activity Index expectations of confidence in the economic outlook in line with recent surveys. Existing home sales for May will also be released with the expectations being around -4.2% up from -17.8% in the month prior.