Vaccine Fever Drives Australian Dollar Higher at Start of New Week

- AUD bid as markets turn positive
- GBP/AUD likely to respect August range
- GBP/AUD support at 1.8130

Image © Adobe Images

• GBP/AUD spot at time of writing: 1.8257
• Bank transfer rates (indicative guide): 1.7618-1.7746
• FX specialist rates (indicative guide): 1.7832-1.8093
• For more information on bank beating rates, please see here

The Australian Dollar is rising alongside global stock markets and commodity prices as a classic 'risk on' day greets investors at the start of a new week.

The Australian Dollar's 'high beta' - i.e. positive correlation with risk, typically the S&P 500 index - remains in evidence and we would expect further gains for the currency to be realised if markets continue to rally.

"The rise in risk appetite has helped commodity-currencies like the Australian and Canadian Dollars strengthen," says George Vessey, Currency Strategist at Western Union.

One factor for the market's optimism being cited by analysts and financial commentators at the start of the new week are developments concerning covid-19 treatments and vaccines.

"Markets have kicked off the week in style, with the FDA’s decision to approve the convalescent plasma coronavirus treatment raising hopes that we could see a vaccine fast-tracked before long," says Joshua Mahony, Senior Market Analyst at IG.

The Food and Drug Administration (FDA) on Sunday issued an emergency authorisation for doctors to treat Covid-19 patients using blood plasma from patients who’ve recovered from the disease. The decision was made after research showed the plasma can improve a covid-19 patient's chance of survival, particularly if administered early on.

"With the US election looming large for Donald Trump, we are likely to continue seeing a proactive approach from the president as he seeks to expedite the provision of treatments and vaccines in a bid to overcome this virus before the polls open in November," says Mahony.

A second shot of confidence comes from reports that the U.S. administration is considering fast tracking approval of the Oxford-Astrazeneca vaccine, which is currently undergoing phase 3 trials.

"There is also talk of US President Donald Trump fast-tracking approval of another coronavirus vaccine being developed by Oxford University and AstraZeneca ahead of the US election in November. The main theme dominating financial markets is the global economic recovery from the pandemic-induced recession. For this reason, financial markets will be sensitive to vaccine related news, which will determine risk sentiment," says Vessey.

However, it is believed that the numbers of people involved in the Oxford-Astrazeneca phase 3 trials in the UK study falls below the 30K threshold required for approval in the U.S., however the threshold is reached when the trial numbers in South Africa and Brazil are added.

"Rumours of a move to fast-track the Oxford-led vaccine may have provided a boost for global market sentiment, yet significant question remain over whether we would see significant participation without the full development process having been undertaken. However, this move to push through a treatment could play a crucial role in helping to bring down the casualty rate in the US, with that coronavirus response intrinsically linked to the upcoming election. With markets seemingly fearful of what a Biden presidency could bring, the gains we are seeing today are partially a response to the possibility of a second term for Trump," says Mahony.

Amidst the rally in equities and commodity prices, the Australian Dollar-to-U.S. Dollar exchange rate is quoted 0.40% higher at 0.7186, the Euro-to-Australian Dollar exchange rate is meanwhile quoted slightly softer at 1.6471.

The Pound-to-Australian Dollar exchange rate was meanwhile trading lower in response to the stronger Aussie Dollar, with GBP/AUD quoted at 1.8258 at the time of writing. (If you wish to lock in current rates for future use, or automatically trade at better rates in the future, please see here).

The Pound rallied to its highest level in August on Friday on the back of some consensus beating economic data which confirmed the UK's economic recovery picked up a decent head of steam in August, however the gains were subsequently overturned when EU and UK Brexit trade negotiators confirmed little progress was achieved in the 7th round of negotiations.

The rejection in the vicinity of the 1.84 area for GBP/AUD is consistent with the pair starting to build a relatively well defined range that looks intent on taking the exchange rate through to September.

The Pound-to-Australian Dollar exchange rate is back towards the middle of its August range, which is loosely defined by 1.84 at the top and 1.8130 at the bottom. We would expect the range to remain intact in the current market environment and therefore would expect any movements to these boundaries to ultimately reverse.

We reported last week that Australian bank NAB say Australian Dollar weakness is likely to be shallow and they expect the currency's 2020 bull market to remain intact.

In a monthly research note detailing their latest assessment of the foreign exchange market, NAB says there remains an intact case for higher levels in the Aussie Dollar in 2020 and beyond.

Underpinning expectations for a robust Aussie Dollar going forward is the ongoing global recovery story - particularly that of China - and policy support that has underpinned a strong recovery in stock markets, to which Australian Dollar performance remains positively correlated too.

In addition, expectations for further support out of China via strong demand for Australian commodity exports remain intact.

"The infrastructure-heavy China recovery story and what that means for key Australian commodity export prices remain part of the forecast narrative," says Ray Attrill, Head of FX Strategy at NAB. "Nothing in the latest China economic data gives pause for re-assessment at this juncture."

NAB are forecasting an Australian-to-Pound exchange rate of 0.55 by the end of September, 0.54 by year-end, 0.54 by March 2021 and 0.55 by June 2021. This gives a Pound-to-Australian Dollar exchange rate of 1.82, 1.85, 1.85 and 1.82 for the respective timeframes.

The Australian-to-Euro exchange rate is forecast at 0.61 by September, 0.61 by year-end, 0.61 by March 2021 and 0.62 by mid-2021. This gives a Euro-to-Australian Dollar exchange rate of 1.64, 1.64, 1.64 and 1.61.

The Australian Dollar-to-U.S. Dollar exchange rate is forecast at 0.72 by the end of September, 0.740 by year-end, 0.76 by March 2021 and 0.77 by mid-2021.