The Australian Dollar ended a 5-week losing streak against the US Dollar on Friday, with the AUD/USD closing up 0.32% to end the week at $0.7172.
The 5-week losing streak was snapped after a combination of weak economic news from the US and news that Australian Q3 GDP fell by -1.9%. Although in decline, the Q3 GD figures significantly beat market expectations for a -2.7% drop. The fall is the first quarter of negative growth since the 6.8% fall recorded in the June Quarter of 2020 and means the Australian economy is once again smaller than where it was before the onset of the coronavirus pandemic.
Significantly, the household savings rate in Australia rose from 11.8% to 19.8% in Q3 as lockdown meant Aussie households to save more of their income. The big jump in the savings rate is a strong indication that a swathe of pent-up demand is ready to be unleashed into year-end. It also indicates that there is a buffer should interest rates begin to rise earlier than forecast in 2022.
The Aussie has been the laggard in the FX market since the start of November but it turned around this week and was the top-performing G10 currency. As well as breaking a 5-week losing streak against its American counterpart, the AUD also ended a 5-week losing run against the Japanese Yen. The AUD/JPY closed up 0.27% to 81.32.
Although the economic outlook for Australia is quite encouraging, the main threat to recovery is the new Omicron strain of the coronavirus. China, Australia’s main trading partner, has pledged a zero-covid policy which could mean more lockdowns and more supply and distribution problems.
Australia has been one of the strictest nations in the world when it comes to trying to contain the coronavirus pandemic. Further lockdowns would add huge pressure upon Australia’s fragile economic recovery
