The Australian dollar saw an impressive surge during Friday’s trading session after bouncing back thanks to an improving risk sentiment, but there is still a huge likelihood that it might be overtaken by the bears.
The Aussie dollar experienced an impressive surge against the U.S dollar on Friday from the day’s low at 0.6023 to the day’s high at 0.6198. This impressive gain may have been influenced by the 3.37% fall in the S&P 500 and 4.06% drop in the Dow Jones on Friday, indicating declining investor sentiments, which may have subsequently fueled a USD selloff.
Meanwhile, the AUD’s rally was also supported by higher risk sentiments by investors. However, there is a likelihood that the Aussie’s run may not be sustained and for a good reason. The U.S has already started implementing economic support measures aimed at helping the economy to adjust to the negative economic impact of the coronavirus.
The AUD’s surge against the U.S dollar also came on the heels of the Federal Reserve’s announcement that it would slow down the pace at which it has been purchasing treasuries. It plans to do this as soon as April 2 with the amount purchased going down from $75 billion to $60 billion.
Why the AUD’s bull run may be short-lived
The U.S dollar has kicked off this week on bullish momentum as it attempts to recover some of the lost ground during last week’s trading session. In other words, the Aussie may lose some of its gains against the greenback, considering the measures that the U.S government and the Federal Reserve have implemented to stimulate economic growth and recovery.
Another major factor that may lead to a decline in the value of the AUD against the U.S dollar is the fact that the latter is now being treated as a safe haven currency. This is because investors are treating the U.S dollar as a safe haven currency, especially since riskier currencies are more susceptible to the impact of the COVID-19 pandemic. Investors are thus swaying towards the side of caution due to the highly volatile nature of the current situation.