The Australian dollar dropped yesterday leaving the currency on the back foot as risk appetite continued to fall, sending the AUD into a fresh 11-year low against the US dollar. Fears concerning the COVID-19 disease have spiked over the weekend, leading into the trading week which has lowered the markets willingness to take risks, as a result the risk-sensitive AUD have taken a hit. New cases continue to be reported across the world, with the majority of infections in China but other countries like South Korea and even Italy have been hit badly. The World Health Organisations (WHO) Chief Tedros Adhanom Ghebreyesus warned that the window of opportunity to contain the virus is ‘narrowing’.
Increasing concern for the COVID-19 spread in China has sunk investor appetite
Paul Hunter, Professor of Health Protection at the University of East Anglia said that the increase in cases outside China was ‘extremely concerning’. He added further, that the tipping point after which our ability to prevent a global pandemic seems a lot closer after the past 24 hours. The AUD remained under pressure as investors rushed to assets like the safe-haven US dollar and Swiss franc. As a result, the AUD/USD exchange rate traded downwards at around $0.6595 later in the morning. Analysts at Barclays Bank have noted that the market reaction to the coronavirus appears to be evolving, beginning to differentiate the currencies vulnerable to the virus from the rest. They also noted that the USD assets provide relative attractiveness, with no impact on growth from the coronavirus, relatively few domestic disappointments and a low dependence on the Chinese economy.
AUD slumped against euro following upbeat German data release
Yesterday saw the release of Germany’s IFO business confidence data. The data beat expectations and saw a revival of the euro after weeks of suffering near the bottom of the trading pile. The IFO Business Climate Index rose from 95.9 to 96.1. Which sent the AUD/EUR exchange rate to €0.6088. Despite the data release being positive, the economic effects will take longer to hit, with the coronavirus now at the gates of Europe following a group of new cases reported in Italy, survey data are likely to deteriorate rapidly in the months to come, which will likely see the euro value drop.
Looking ahead, the AUD is likely to remain under pressure as the current risk-off mood continues amongst investors. Should the number of confirmed cases grow around the world, then the AUD will slide.
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