Monthly Wrap: AUD – Dovish RBA and Covid concerns see AUD shed gains

By Philip McHugh on September 17, 2021

Key takeaways:
–             Risk appetite drives a lot of movement
–             Dovish RBA sees AUD lose gains from positive data
–             AUD monthly lows: £0.52, $0.71, €0.61, NZ$1.03, C$0.91
–             AUD monthly highs: £0.54, $0.74, €0.63, NZ$1.05, C$0.93

The Australian dollar (AUD) struggled through the middle of August, as ongoing lockdowns and rising coronavirus cases dented the Australian economy. The Reserve Bank of Australia (RBA) warned of this in its August meeting minutes, saying ‘recent outbreaks of the Delta variant of Covid-19 have interrupted the recovery’.

The ‘Aussie’ then managed to climb towards the end of the month as an upbeat market mood supported the risk-sensitive currency. Paired with a handful of positive data releases in early September, this pushed AUD exchange rates up to monthly highs.

GDP growth printed above expectations and Australia’s trade surplus widened to a record high of AU$12.11bn thanks to rising commodities prices and increased global demand.

The RBA’s decision to go ahead with tapering then dented the Australian dollar, as they planned to do so over a longer-than-expected period, leading some to term the move a ‘dovish taper’.

This dovish tone was reinforced after RBA Governor Philip Lowe quashed rumours of an early rate hike, saying he didn’t expect to raise interest rates until 2024 due to Australia’s Delta-virus disruption. This, along with a souring market sentiment, saw AUD lose the month’s gains.

Turning to the month ahead, risk appetite is likely to play a major part in AUD exchange rates. With the ongoing global uncertainty, market mood has been known to swing wildly, so headlines around the world’s economic recovery and the Delta virus variant could cause significant movement.

Australia’s domestic Covid situation will also be a key influencing factor. With the country’s vaccination rollout picking up speed, hopes that the country can ease restrictions and reopen its economy could provide the ‘Aussie’ with some support. Conversely, continued lockdowns may weigh on AUD.

Finally, early October brings the RBA’s next interest rate decision. If things improve and the bank takes a more hawkish stance, AUD could make some gains.