Australian dollar surges on falling coronavirus cases and RBA tapering

The AUD/USD rally continued as the number of new coronavirus cases continued to dwindle in Australia. The pair has rallied by more than 5% this week, making it the best-performing currency in the developing world. The ASX 200 rose by more than 3% this week, bringing the last two weeks total to more than 7%.

Australian dollar vs peers

Australia coronavirus cases drop

Coronavirus data from Australia has been encouraging. Data from Worldometer shows that the country has recorded about 6,1500 cases, 2,300 recoveries, and 53 deaths. This is a remarkable feat for a country of more than 25 million people. Another positive is that the number of cases has been falling from a peak of 537 on March 22 to just 100 yesterday.

Australia has achieved this by creating strict physical distancing measures that are enforceable by law. The government has shut down schools, closed churches and mosques, and ordered workers to stay at home. The country was also among the first ones to ban flights from other countries.

This week, the Australian parliament voted on the country’s biggest stimulus package in history. The package, worth more than $80 billion, will see companies receive funds. Workers of struggling businesses will also receive a $1,500 check every two weeks from the government.

The Australian central bank has also been proactive. The bank slashed interest rates twice in March, bringing them to an all-time low of 0.25%. The bank is also part of world central banks that are swapping their currencies with the Federal Reserve.

It has also announced plans to keep the yield of the 3-year bonds below 2.5%. It has achieved this by implementing its first quantitative easing program. In the past three weeks, the RBA has bought government bonds worth more than A$41.5 billion. Still, recent data suggest that the RBA has started tapering on its bond purchases.

Can the Australian dollar maintain the momentum?

The AUD/USD pair future trend could depend on how fast Australia and China reopens. There are signs that the country will reopen in the near term. For example, the government has already ordered independent schools to reopen for term two. This could see more industries opened in the next few weeks, according to an analysis by The Guardian.

Another positive sign for Australia is that China appears to be opening up too. The government has already ended the lockdown in Wuhan, and there are signs that businesses are doing well. For example, the auto industry has made a slight recovery since more people are preferring private cars, which are considered safe.

A vibrant China is good for Australia because the country exports two-thirds of its products there. These exports include coal, iron ore, and natural gas. More so, one in five of all foreign students in Australia is from China.

Finally, signs of tapering by the RBA could be positive for the Australian dollar. Positive because it has the likelihood of increasing Australian bond yields and reducing the amount of Australian dollars in circulation.

In a research note, analysts at ING questioned whether the current momentum could be sustained. They wrote:

“We are still not convinced that the recent rally is an initiation of a more sustained recovery just yet. And this is largely because, despite the encouraging signals in terms of slowing contagion in Europe, lingering uncertainty around the depth of the upcoming global recession suggests a big deal of caution when betting on procyclical currencies.”

AUD/USD technical outlook

On the four-hour chart, the AUD/USD pair broke above the ascending triangle pattern shown in yellow. It also moved above the important resistance levels of 0.6200, 0.6250, and 0.6350. Additionally, the pair has moved above the 61.8% Fibonacci Retracement level and the Ichimoku cloud. The RSI has moved to the overbought level 73. This means that the pair will possibly attempt to test the 73.6% Fibonacci level of 0.6440.