NZD, AUD Claw Back Up Amid Weakening US Dollar
NZD, AUD Claw Back Up Amid Weakening US Dollar
The New Zealand Dollar is fighting it’s way back up as the country enters it’s first official day of nationwide lockdown. It posted a 0.67% gain for the trading day, up to 0.58390 cents against the US Dollar. Just a week ago the NZD had dropped to 0.56, and looked ready to hit the 55 cent mark, as news broke of Air New Zealand’s layoffs.
Similar movement can be seen in the AUD, with a meek recovery of 0.47% up to 0.59820 cents. Both currencies have had very similar patterns over the last month, having fallen sharply since the start of the month, and only now starting to recover in the last few days. Both currencies have suffered heavily since the outbreak of the coronavirus epidemic, as they are seen as high risk currencies, and for good reason, given their trading connections to China. They have also been weakened by the strength of the US Dollar, which investors flocked to as a safe haven.
The lockdown, which began on Thursday 26 March, is level 4 of the New Zealand government’s strategy to combat COVID-19, the highest level. It involves the shutdown of all non-essential businesses, and the strict restriction of all travel. Citizens are told to stay at home and limit contact with others at all costs. As part of this lockdown, Prime Minister Jacinda Ardern also declared a state of emergency across the entire country on Wednesday, as part of the drastic measures to contain the spread of the virus. While the level 4 measures were originally designed for when the virus could no longer be controlled in the country, the government decided to preemptively enter this stage after 36 new cases were confirmed in one day, in order to contain it as much as possible.
The uplift of these currencies can be attributed to the slightly improving global market sentiment, as several countries have all pledged massive and unprecedented amounts of economic stimulus. In the US, the $2 trillion coronavirus bill was passed unanimously in the Senate, after the Democrats and Republicans finally reached an agreement over its contents.
It can also be attributed to the halting momentum of the US Dollar. The Dollar Index hit its peak at 102.87 points before coming back down, following 3 year highs. Last week’s rise in the Dollar was mostly attributed to the need for liquid cash as the markets crashed and investors pulled out, as well as to fund their margins. The Dollar Index is currently trading just above 100 points.
The markets are also bracing for news on US jobless data, as it will inevitably be extremely negative. Economists are predicting anywhere from 1 million to 1.5 million jobs lost. More than 1 million Californians have already filed for unemployment as the state entered lockdown 6 days ago, as announced by Gavin Newsom, the governor of the state. He also announced yesterday that the restrictions would remain through Easter.
New Zealand has had no new Coronavirus cases in the past 13 days. America is about to top 105,000 cases. New Zealand went hard and fast. The United States Is barely squashing the curve. New Zealand is in the phase were politicians are arguing when to remove all restrictions. America is reopening to save a dwindling election. A stark contrast in the environment between the two countries. However, one thing remained constant – the returns in the major indices between both countries.
The US Dollar index weakens for the 7th straight day as investors’ appetite for risk increases. The AUD/USD has broken the 0.69 mark, with the USD weaker against its G10 currencies, with global indices rising on forward optimism on a quicker recovery from the effects of the Coronavirus. US Indices have seemed to quickly discount the effects of the protests as they continue for the 8th straight day.
A couple of weeks ago, I wrote an article about the decorrelation between Wall Street and Main street. Back then, this was related to the Coronavirus’s impact on everyone in the light of Wall Street’s impressive rally. While Main street is still reeling from the devastation the Coronavirus has brought, current protests due to another incident involving a white policeman killing a black man have sparked outrage all over the country.
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