AUD/USD lives to fight another day in the face of COVID-19 contagion

AUD/USD is currently trading at 0.6852 and is down a touch on the day, losing 0.13% at the time of writing. 

The pair has travelled from a high of 0.6890 to a low of 0.6841so far while the USD dominates the pack having rallied from the open this week between 97.11 and 97.65 in the DXY. 

However, the Aussie has been one of the better performers with commodities firming. The CRB index has climbed an impressive margin, by over 2% on the day with US oil leading the way, rallying near to 4%.

in recent trade, we have seen a resurgence in the US dollar, with month-end flows contributing to volatility on the day across the spectrum of financial and commodity markets. 

Economic data from the US came in above expectations. Pending Home Sales jumped 44.3% in May while the Dallas Fed Manufacturing Index climbed to -6.1, against a reading of -59 of market consensus.

AUD short positions edged lower

From a positioning standpoint, USD net positions remained broadly stable having dropped into negative territory the previous week for the first time since May 2018 as improved market sentiment and dollar liquidity continued to impact.

As for net AUD short positions, they had edged lower having collapsed the previous week. 

AUD/USD has already been elevated on the spot market for some weeks but it is now starting to pull back from its recent highs. 

The second wave of COVID-19

The worries about a second wave of COVID-19 leave the AUD exposed given its sensitivity to growth and high correlation to equity prices. 

The end of the financial year this week marks "the line in the sand" which will show the share market down for the year but a very positive quarter, potentially supporting prospects of a stable currency and elevated risk sentiment. 

Analysts at the National Bank of Canada have noted the risks of a second wave, but illustrate a light at the end of the tunnel for risk appetite. 

"The age distribution of the people most likely to die of Covid-19 is one of the most basic arguments against a severe lockdown of the economy. The death rate is highest among those 65 or older, most of whom are no longer in the labour force."

Encouragingly, the analysts put the case forward for continued economic recovery:

Absent a mutation of the virus, governments will be justified in keeping major segments of the economy open while channelling more resources to the protection of older people, especially those in seniors residences and nursing homes. That, combined with more-aggressive testing, use of contact-tracing applications, compliance with physical distancing measures and, possibly, the obligatory wearing of masks, could fight the epidemic without excessive damage to the economy and labour market.

Meanwhile, economic data is going to come thick and fast this week, with business figures to be released from China and the US. We will also have the US Nonfarm Payrolls on Thursday as well as domestic ABS statistics on payroll employment and wages, building approvals and retail figures.

AUD/USD levels

• AUD/USD Weekly Forecast: Resilient Aussie needing just a lil push