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AUD Starting to Show Signs of Recovery

AUD Starting to Show Signs of Recovery

In its latest meeting on Tuesday, the Reserve Bank of Australia decided to leave the interest rate for the Australian Dollar unchanged from its current record low of 0.25%. In a statement, the RBA said that they would not increase the rate until they were confident that the inflation rate would increase at the target rate of 2-3%. As expected, they were concerned about the current economic instability, not only in Australia, but in the rest of the world as well.

The RBA’s rate cut mirrors that of the Reserve Banks from other countries during this crisis, namely the US, UK and Canada, which also slashed their interest rates down at around the same time. As a result, its decision to maintain the rate at the current level was also expected, although some countries such as the UK's Bank of England has since then cut rates even further, down to 0.1%.

Australia’s credit rating has also been downgraded by Standard & Poors, down to 'negative'. Citing a “substantial deterioration” in the nation’s finances, which made the country at a high risk of a deep economic recession, the ratings agency stated that the large amount of economic stimulus packages in order to support the country through COVID-19 would weaken the government's debt burden substantially.

Out of the 11 countries given AAA ratings by S&P, Australia is the first to have had their credit outlook downgraded from stable to negative. It is also expected for S&P to officially lower Australia's AAA rating within the next two years, depending on how severe the economic damage caused by the coronavirus will turn out to be.

Australia has also just recorded its lowest number of new coronavirus cases in three weeks, with only 96 infections for the day. This positive data has affected the Australian Dollar slightly, with the AUD/USD pair trading up marginally for the day. It is currently trading at a high of 0.6245.

As the coronavirus infections begin to stabilise across the globe, and risk appetite improves, the Australian Dollar, much like the New Zealand Dollar, is beginning to move upwards as well. The AUD has gained 3.74% over the past week, and looks set to continue its bullish momentum in the coming weeks. A slightly weaker US Dollar will also aid in preventing the Aussie Dollar from making too many sharp movements to the downside.

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