Aussie Dollar Breaks Through 70 Cents Ceiling on Growth Bets

(Bloomberg) — Australia’s dollar broke through the key 70 U.S. cents mark on expectations that markets have witnessed the worst of the coronavirus’ carnage on the global economy.

The Aussie jumped as much 0.9% on Friday to 70.04 U.S. cents, the highest level since early January when the virus outbreak had yet to explode into a pandemic. It has risen 27% after sliding to a near 18-year low in March, and is seen as a favored asset to buy among investors cheering the re-opening of economies from Singapore to Germany.

“The Aussie is on a tear, and with markets undergoing a massive reappraisal of risk, it’s hard to rule out the currency rallying even more,” said Janu Chan, senior economist at St. George Bank Ltd. in Sydney. “The currency is one of the easiest ways for investors to express their risk sentiment, and Australia’s containment of the virus, the RBA’s refraining from going down the path of negative interest rates are certainly helping.”

The Aussie could rise to 75 U.S. cents next year as it benefits from a cocktail of supportive monetary and fiscal policies, improving risk sentiment and the nation’s record trade surplus, Thomas Nash, a strategist at HSBC Bank Australia, wrote in a note. “Buying AUD in the depths of recession has been profitable in the past — this time should be no different.”

It was trading back below the key level at 69.92 cents at 5:05 p.m. Sydney time.

The rebound in risk sentiment comes as a set of daily gauges from Bloomberg Economics showed almost all of the economies it monitored witnessed a pick-up in activity in the past two months. The Aussie has been particularly sensitive to these changes given the country’s position as a major commodities exporter and the developed economy with the most direct exposure to China.

The currency also received an inadvertent boost from Reserve Bank of Australia Governor Philip Lowe, who refrained from talking down the currency’s strength at a recent policy meeting.

Risks Abound

To be sure, there are risks to the Aussie’s gains.

Rising U.S.-China trade tensions could spur fresh selloffs. Data Wednesday also showed that the Australian economy contracted in the first three months of the year, virtually guaranteeing an end to its nearly 29-year recession-free run.

Economists expect the current quarter to be the most damaging for Australia.

“The recent price action is an exaggerated rendition of the global economy’s normalization in the wake of the Covid-19 shock,” said Valentin Marinov, head of G-10 currency research at Credit Agricole in London. “The rally in risk-correlated and commodity currencies may start losing momentum going forward.”

(Adds quotes from St. George Bank and Credit Agricole)

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