The A $ vaccine hike has met resistance around 0.73 this week. Equities are also stopping to catch their breath, caught in a standoff between vaccine optimism in the medium term and tightening restrictions to curb covid spikes. But many currencies continue to climb and A $’s commodity fundamentals remain in very good shape, according to Westpac.
“The A $ vaccine hike has encountered resistance around 0.73 this week. Global stocks are also stopping to catch their breath, caught in a tussle between vaccine optimism over the medium term and tightening restrictions to stem spikes in covid. In recent days, schools in New York have been closed, California and Illinois reinstated mitigation plans, Ohio has imposed a statewide curfew, and Tokyo has raised its alert to virus at its highest level. But many currencies continue to climb, and the Australian dollar has slipped into the bottom half of the G10 charts, giving up its usual outperformance position when the US dollar falls heavily.
“The accelerated pace of asset purchases by the RBA may be a root factor in capping the A $. Other headwinds include growing threats from China to Australian exports, even as the two countries sign the RCEP “free trade agreement”.
“Still, the Bloomberg Commodity Index is holding close to its highs since March and iron ore is at 2-month highs above $ 125 / tonne. China’s early control of Covid is helping to cement a recovery that continues to accelerate. Industrial production rose 6.9% in October from levels a year ago, the third reading in a row stronger than expected. A $ commodity fundamentals remain in very good shape. The picture for the coronavirus in Australia also remains very positive, even with SA’s likely brief lockdown in response to a small number of cases. Victoria is opening up and, encouragingly, jobs have already picked up in October, helping to generate an impressive job gain of 179,000 jobs rather than the -30,000 expected.
“The US dollar is likely to collapse to new lows at some point. The momentum of the US rebound has already weakened and will surely slow down further after the latest patchwork of local efforts to contain the spread of the virus. That, and the reduced hopes for a large-scale fiscal stimulus that would have come with a blue wave, the outcome of the US election should see the Fed deliver a firm and accommodating message at its mid-December meeting.