Australian Dollar May Extend Gains Despite Escalating China Trade Tensions

AUD/USD

AUSTRALIAN DOLLAR FUNDAMENTAL FORECAST: BULLISH

  • Easing coronavirus restrictions may continue to underpin AUD.
  • Better-than-expected economic data may sway the RBA to retain its wait-and-see approach in the near term.
  • Deteriorating Australia-China relations may undermine the nation’s economic recovery.

EASING BORDER RESTRICTIONS TO UNDERPIN AUD

The Australian Dollar looks set to extend its push to fresh yearly highs in the coming week, buoyed by robust economic data and the nation’s progressive return to normalcy.

As mentioned in previous reports, Australia’s successful suppression of the novel coronavirus has allowed states to roll back border restrictions, with the border between the nation’s two most populous states – Victoria and New South Wales – reopening on November 23 after being closed for over 4 months.

Western Australia is also set to open its doors to the rest of the country on December 8. However, Premier Mark McGowan has warned that “if there’s outbreaks over east, we’ll have to put in place new measures”.

Mobility trends australia

Source – Apple Mobility Data

That being said, with only 47 active coronavirus cases nationwide, the probability of a significant outbreak seems relatively minimal. Therefore, the marked easing of restrictions will likely bolster the heavy-hit tourism, travel and services sector and may accelerate the country’s nascent economic recovery.

Indeed, high-frequency data highlights the normalization in resident’s behavior and movement, with all three mobility trends – walking, driving and transit – notably moving higher in recent days. Moreover, the local economy recorded its steepest period of expansion since 1976 in the third quarter, as economic activity resumed following the loosening of social distancing measures.

RBA TO HOLD FIRE ON FURTHER EASING

These positive developments may diminish the probability that the Reserve Bank of Australia will adjust its monetary policy settings in the near term.

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