AUD/USD sits firmly in the 0.61 handle, idling a fluid COVID-19 situation

• AUD/USD holds in a bullish trend, correcting the March lows. 
• Markets are pricing in stimulus measures, mopping-up some of the mess of COVID-19 fears from FX. 

In month-end, AUD/USD is holding territory on the 0.61 handle despite a bounce back in the DXY, trading at the time of writing at 0.6159 and between a range of 0.6159 and 0.6184. Recent measures taken by central banks and governments of the nations seen to be proactive and mitigating the economic damage of the COVID-19 is a likely supportive factor for the domestic currencies and AUD falls into such a category. 

There has been a solid performance in the commodity complex over the past week, although we have seen a lot of volatility making for whipsaw price action. It has been a battle of the increase of reported cases of COVID-19 vs fiscal stimulatory measures by various central governments – the former has been the dominant factor at the end of the week, however. The CRB Index extended its downside correction, lead lower by the price of oil while base metals mainly held their ground, offering some resilience to the Aussie holding territories on the 0.61 handle for the most part while dollar pressures eased off (US yield pressured by COVID-19 testing and cases increasing sharply). 

Stimulus fuelling the bid 

A slowing pandemic will be favourable o the Aussie going forward, but for the meantime, the situation is highly fluid and the Australian economy is facing an unprecedented challenge. The Reserve Bank of Australia and the Australian government along with policies to ‘flatten the curve’ of the coronavirus has been supportive of AUD despite the prospects of more than 1m jobs being lost as Gross Domestic Product is seen to contract by as much as 13%-16% with the unemployment rate expected to spike sharply. FX markets are factoring in a foregone conclusion, so anything that is seen to stimulate the economy is priced in as a positive for the currency, for now. 

The Australian Government announced the 3rd fiscal package in as many weeks, in the biggest fiscal package ever announced for Australia. "Fiscal stimulus from the three packages comes in at A$213b, which equates to roughly just under 11% of GDP. This is well above the rough 5% of GDP (~A$50b) that was offered during the 2008/09 financial crisis stimulus. If we take into account the A$90b Term Funding Facility from the RBA and the $15b AOFM investment into RMBS and ABS, this puts total stimulus at A$318b, ~16.4% of GDP," analysts at TD Securities explained. 

"We expect renewed interest over coming weeks over the prospect for Australia losing its AAA rating," the analysts at TD Securities argued, adding, "As for the AUD, we expect markets to reward those countries and currencies viewed as proactive in addressing risks to growth, so the FX hit should be shallow if any."

AUD/USD levels