- Coronavirus infections Concerns
- Overvalued AUD Warning
- Weak AUD Calls
The Australian Dollar started the week on a roll, weakening, before gaining some ground against the Dollar. However, the AUD/USD pair remains on edge after plunging from three-month highs amid weakness in the AUD in recent weeks.
The AUD has been under pressure amidst concerns about a V-shaped recovery of the Australian economy. Re-emergence of coronavirus infections in Australia as well as a spike in cases in China, its largest trading partner, has continued to dampen sentiments on the AUD.
Conversely, the AUD/USD pair finds itself struggling for direction after pulling back from three-month highs. The pair remains on the defensive in the aftermath of Reserve Bank of Australia Governor, Philip Lowe, reiterating that the AUD is overvalued at current levels.
The sentiments come at a time when the Australian economy appears to be struggling to bounce back from the COVID-19 fallout. Unemployment levels have already clocked decade highs, the economy having shed more than 800,000 jobs over the past two months.
The RBA has had to purchase government bonds as part of monetary policies to revitalize the struggling economy. A strengthened AUD is the last thing that policymakers need at the moment with Governor Lowe insisting a weakened AUD would go a long way in lifting inflation levels that have tanked significantly.
RBA officials may attempt to trigger weakness in the AUD as a renewed case of COVID-19 in China threatens the export-dependent economy. Lockdown in China could take a toll on Australia, which is struggling to bounce back in the wake of economic activities coming to a halt.
AUD/USD direction of trade depends a great deal on how the greenback reacts to new infections in the U.S and China. The U.S dollar has already started the week on a roll rallying to three-week highs against the other major currencies.
Looking ahead, traders await the release of the Chicago FED National Activity Index, which should paint a picture of the health of the U.S economy. The focus will also be on the release of Existing Home Sales.