Risk off as coronavirus marks grim milestone

AUD - Australian Dollar

The Australian dollar fell through trade on Thursday marking a second consecutive daily depreciation as a decline in risk sentiment dominated direction. Over 1 million people have now been infected with the COVID19 virus as the pandemic shows little sign of slowing. Despite a colossal jump in US jobless claims overnight markets looked to the worlds base currency as demand for haven assets outstripped underlying macroeconomic fundamentals. The 3,000% jump in unemployment filings in the US highlights just how devastating the economic impact will be and suggests an extended period of fiscal stimulus and monetary policy support will be required, a prospect mirrored around the world and echoed by Prime Minister Morrison on Thursday. Morrison, suggested he fully expects the current environment will become the “new normal” for at least the next 6 months, stating, he would prefer to be up front and honest about the scale of lockdown measures and breadth of time required to get a handle on the outbreak rather than afford false hope that the situation will be contained in 2-3 weeks.

While short term forecasts remain squarely affixed to the evolving pandemic longer term forecasts for the AUD vary wildly. Some analyst are forecasting an AUD rebound and push back toward 0.70 into the end of the year, while others are pricing in a sustained period of underperformance and dip below March lows at 0.55. While we fell the AUD is incredibly cheap at the current handle and represents a reasonable buying opportunity the success of any recovery depends solely on our ability to tackle and suppress the Coronavirus outbreak. The longer the virus maintains its stranglehold on the global economy the deeper the global recession that follows, a scenario that does not necessarily bode well for the AUD.

Key Movers

The US Dollar climbed through trade on Thursday reversing the recent downtrend and marking a second straight daily advance. Investor concerns surrounding the state of the coronavirus and the looming global recession prompted a sustained risk off run and push toward haven assets. A grim milestone was reached Thursday with 1million cases of COVID 19 recorded globally, a fifth of which are in the US. With over 200,000 Americans already confirmed to have contracted the virus and the US woefully ill-prepared to deal with the outbreak there are real fears the US will outstrip Italy’s casualty rate in the weeks ahead. Vice President Mike Pence affirmed such fears Wednesday suggesting the US was on a trajectory comparable to Italy, stating that a horrific few weeks lay ahead. Investors largely ignored a 3,000% jump in jobless claims with 6.65million American filing for unemployment through the last week. The print dwarfed medium estimates and only served to highlight the economic footprint likely to be left behind by the spreading pandemic.

Attentions remain squarely affixed to the evolving pandemic and we expect the US Dollar will remain largely well bid as risk sentiment continues to falter in the face of the unrelenting pandemic. That said with US funding costs easing topside moves amid normalized trading patterns are likely to be modest and more measured, while a sharp correction remains in play should panic envelop broader financial markets again.

EUR/USD fell below 1.09 and currently sits at 1.0858. Sterling pulled off highs above 1.2450 to open the Australasian session at 1.2392. The CAD and NOK outstrip all major counterparts, buoyed by a 25% resurgence in oil prices.

Expected Ranges

AUD/USD: 0.5930 - 0.6180 ▼

AUD/EUR: 0.5480 - 0.5630 ▲

GBP/AUD: 2.0020 - 2.0680 ▲

AUD/NZD: 1.0120 - 1.0320 ▼

AUD/CAD: 0.8480 - 0.8640 ▼