Australian Dollar & ASX 200 Price Outlook Amid Coronavirus Outbreak

AUD/USD & ASX 200 Forecast:

• The ASX 200 fell to its lowest level since 2012 on Monday as Australia goes into lockdown
• AUD/USD will remain weak until risk appetite reemerges in markets
• Despite upcoming economic data, virus headlines will likely dictate price action for both the ASX 200 and Australian Dollar

Australian Dollar & ASX 200 Price Outlook Amid Coronavirus Outbreak

Australian authorities announced increasingly stringent lockdown measures over the weekend which likely played a role in the decline that saw the ASX 200 fall to its lowest level since 2012. Meanwhile, AUD/USD continued lower as the outlook for the global and domestic economy weaken. Further still, Australian PMI figures revealed a worrisome pullback in data that will likely worsen for the foreseeable future as more of the developed world enters lockdown.

AUD/USD & ASX 200 Price Chart: Weekly Time Frame (2004 – 2020)

Chart created with TradingView. Correlation in blue

Consequently, both the ASX 200 and AUD/USD may remain vulnerable in the coming weeks and the correlation between the two markets has shot higher. While equity markets typically enjoy some degree of negative correlation with their domestic currency, the recent rout has seen risk appetite evaporate regardless of asset class. As a result, AUD/USD has dived to tag the lowest level since 2002 as traders ditch the growth-linked Aussie for the relative safety of the Greenback.

Since both markets are largely dependent on economic growth and risk appetite, they may experience heightened pressure from the coronavirus pandemic. That being said, they may also be some of the first markets to hint at a broader recovery due to their proximity and connectivity with China and Chinese demand. But in the meantime, IG Client Sentiment data suggests AUD/USD may continue to fall. Given the highly positive correlation between the ASX 200 and AUD/USD currency pair at present, we can suspect that Australian stocks may also extend lower in the days ahead.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX