Australian dollar at risk of 2nd wave of virus

Financial and commodity markets analytics

The Australian Dollar in under further pressure in today’s trading session after one of Australia’s most populous states reintroduced lockdown measures to contain a possible 2nd outbreak of the coronavirus that threatens to derail the remarkable recovery of the Aussie currency since the depths of the coronavirus.

Victorian Premier Daniel Andrews made an announcement that "hot zones" in Victoria will return to lockdown from today due to an uptick in coronavirus cases and is thought to be caused by the recent relaxation of quarantine measures which some say now was probably premature.

A second round of the virus throughout the world is now a real possibility, as other countries such as the US have also reintroduced lockdowns in some states which could once again hit the global economy at a time when a gradual recovery seemed imminent.
This scenario would hit riskier assets such as the Australian dollar hard and help boost the appeal of safe haven assets such as the greenback and Japanese Yen.

"Risk aversion has taken more of a grip on major markets in recent sessions as a drip feed of negative newsflow surrounding second wave infection rates of COVID-19 has increased. Infection rates rising again in the infection rate curves across several US states have made traders sit up and take note," says Richard Perry, market analyst at Hantec Markets.

Also hurting the Australian dollar, is news out of Hong Kong, that the Chinese government has passed a new law which in effect bans many types of protests and breaks China’s commitment to a one country, two systems model of governance and has led to the US threatening to revoke Hong Kong's special status with regards to financial dealings among other things.

 

 

There is also speculation the US will slap further economic measures on China which may incur some type of retaliation from the world’s 2nd largest economy and deepen the ongoing trade wars between the 2 countries which will be damaging to the Australian economy.

"In our view, there is a risk that CHN, AUD and NZD weaken if the Chinese government responds to the US announcement," says Kim Mundy, a strategist at Commonwealth Bank of Australia.


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