The AUD is outperforming its G10 FX peers on the back of monetary policy divergence and its relatively high correlation to US equities. The minutes of the May 5 RBA meeting unsurprisingly echo the policy statement.
"The outlook remained uncertain, although if infection rates continued to decline and restrictions were eased, a recovery could be expected to start later in 2020, supported by both the large fiscal packages and the monetary policy response."
Since the beginning of the month, tensions between Australia and China have ramped up, with Beijing taking anger at criticism over its coronavirus response. After barring some meat imports from Australia, China is now imposing anti-dumping duties on barley imports. The AUD has not flinched, with more positive risk sentiment getting driven by reflationary inputs from the S&P 500, particularly around oil and commodity miners.
Optimism around the local economy reopening continues to resonate and is currently outweighing the potential negative impact of growing trade tensions. The question now: how long will this last.
RBNZ Assistant Governor Hawkesby says the central bank sees no need to adjust stimulus in the wake of the government's budget. This has predictably triggered more shorts to cover as much of the recent NZD sell-off came on the back of an uber dovish RBNZ.
