Author: Steve Oram
Pressure remains on the Aussie dollar as risk-off sentiment takes hold in global markets. The risk aversion is being driven first and foremost by the uncertainty surrounding the spread of the coronavirus. Our Dollar finds itself starting the week below 0.6700 – its lowest level in 4 months!
The primary driver of the AUD weakness is the classic ‘flight to safety’. In times of uncertainty, commodity driven currencies are sold off heavily in favour of long-term safe-haven currencies like the US Dollar, Japanese Yen and Swiss Franc. This acts a bit like an insurance policy – and in this case is insuring against the threat of the coronavirus having a sustained long-term impact on global economic growth. This could also means that the Aussie is likely to rebound rapidly if (and when) the coronavirus is brought under control.
Of concern today is what happens to Chinese stocks when they reopen following New Year celebrations. The People’s Bank of China has pledged “to provide abundant liquidity in a timely manner to maintain reasonable and sufficient liquidity in the banking system”. So clearly they are concerned about the local Markets reaction when it opens.
In Other News – Brexit
Britain has finally left the European Union, and the Union Jack has been lowered in Brussels parliament. A transition period gives negotiators until the end of 2020 to come up with a new trade deal, and there is of course the potential for this negotiation period to be extended. For now – the practical impact of Britain leaving the EU is notably subdued.
In Other News – Trump
President Trump looks like he has dodged another bullet, as the U.S. Senate have rejected witnesses in the impeachment trial. It is now almost certain that he will be acquitted this week. The entire process has attracted only minor interest from markets, and already attention is turning to who will become the democratic candidate for the 2020 election.
The Week Ahead
This week brings events that will inevitably take a back seat to developments with the coronavirus, but are still key events for financial markets.
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