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Currency point: All abroad the risk train


1 June 2020

The risk momentum is not only accelerating its starting to really peak out. Equity sentiment has seen the Australian market have its best week since 2011 to finish May while US markets breached all sort of technical and psychological levels with the S&P 500 crossing 3000 points for the first time since this crisis began and closing above the 200-DMA, the NASDAQ got within 2.5% of its all-time high (also its pre-COVID high) before the President went after social media companies and the DOW jumped across the 200-DMA as US banks surged.

The risk sentiment is also driving FX – DXY is under pressure it hasn’t seen since the crisis began and the 1.0% fall last Tuesday broke any form of hope the bulls had of holding above 100. DXY has now fallen 3.86% since its peak on March 19. The underperformance is most acute in risk pairs.


Examples

However, as mentioned risk-on sentiment is even more prevalent in the commodity currencies, with the Aussie Kiwi and NOK now the best performing G10 currencies of the past week with the AUD the standout.

AUD


We need to drill into this performance a little deeper to see if it’s sustainable. The pair is hot, and its sustainability is the fundamental question.  

Here are a few points that suggest it just might be: 

There are risks with these views and any signs the growth recovery is slowing or the simmering geopolitical tensions spill over – safe-haven currencies would come to the fore at the expense of the AUD.

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