Dollar Sinks as Doubts Surface over Recovery

As the world economy is gradually recovering from the COVID-19 pandemic, the US services data provided everybody a zing of confidence, although the dollar suffered losses yesterday. The dollar, against a host of currencies, was at a two-week low. The Chinese Yuan, however, soared with the Chinese equities on Monday and successfully breached the seven/dollar barrier. The sudden surge came when a front-page editorial carried the news that the fundamentalists had laid the carpet for a healthy bull market. The US service industry has also bounced back in a big way with the headline figure of 57.1, which is well ahead of the general expectations around 50 odd.

The FX Analyst at Westpac was very optimistic as he claimed that economies are slowly but surely getting back to normal. Strategists believe that the worst is over, but an overnight recovery is not possible for all.

The rapid spread of the Coronavirus in the last few days has cast doubt over quick recovery. Miami has become the latest hotspot in the US, and Australia was forced to close down the border between the two most densely populated states due to an outbreak in Melbourne. The central bank has pumped in cash in the world’s financial system, but the US dollar’s 50 -day moving average has fallen behind the 200-day average, which is not a good sign at all. The Reserve Bank of Australia is also expected to keep the interest rates at a record low of 0.25%. The Reserve Bank of Australia maintains that the Australian economy is faring better than what everybody anticipated, but nobody should expect a higher move in the cash rate. The main risks for both USD & AUD are the escalating tension between the US and China and fear that partial lockdowns will become more prevalent than before.