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Australian Dollar May Reverse as Markets Bet on Coronavirus Vaccine

Australian Dollar May Reverse as Markets Bet on Coronavirus Vaccine

2020-02-06 00:00:00
Daniel Dubrovsky, Analyst
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Australian Dollar, Japanese Yen, US Dollar, Euro, Coronavirus – Asia Pacific Market Open

Australian Dollar Gains as Coronavirus Vaccine Bets Fuels Stocks, EUR/USD Falls

The pro-risk Australian Dollar was one of the best-performing major currencies on Wednesday as sentiment continued to improve. Hopes of a cure to the coronavirus boosted stocks during European trade as reports from Sky News crossed the wires that a vaccine was close to being tested on animals. The anti-risk Japanese Yen likewise underperformed as the S&P 500 closed 1.13% to the upside.

It was a mixed session for the haven-linked US Dollar which outperformed against the Euro. At the end of last week, expectations of aggressive easing from the Fed amid the Wuhan virus outbreak caused the markets to almost fully price in two 25-bp cuts by the end of this year. Those have cautiously receded since as U.S. front-end government bond yields rallied, sending EUR/USD to the downside.

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Markets largely brushed off a report from the World Health Organization (WHO) which pushed back on coronavirus vaccine hopes. European Central Bank President Christine Lagarde also spoke and noted that the Wuhan virus adds a “new later of economic uncertainty”. The rally in stocks helped sentiment-linked crude oil prices find a bottom after persistent declines. It was the best day for WTI since early December.

Thursday’s Asia Pacific Trading Session – Australian Dollar, Japanese Yen

With that in mind, Asia Pacific benchmark stock indexes may take the rosy lead from Wall Street. That may offer a boost to the Australian Dollar at the expense of the Japanese Yen. Cases of the coronavirus still continue to climb out of the world’s second-largest economy. China reported an additional 2,987 cases for Wednesday as deaths rose by 70. The former is a little lower than yesterday while the latter is cautiously up.

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Australian Dollar Technical Analysis

The Australian Dollar may be on the verge of a turning point against the US Dollar after prolonged weakness since early 2020. Prices appeared to have bottomed on key support (0.6672 – 0.6701) and have left behind a Morning Star candlestick pattern. This is a bullish formation which can precede a reversal. That may take prices towards a potential falling trend line – red-dashed line on the chart below. Positioning signals from IG Client Sentiment also hint towards a bullish tilt at the time of this writing.

AUD/USD MIXED
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 7% 27% 12%
Weekly 7% -13% 1%
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AUD/USD Daily Chart

Australian Dollar May Reverse as Markets Bet on Coronavirus Vaccine

Chart Created Using TradingView

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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