Australian Consumer Sentiment Collapses, Aussie Reverses Gains

The Australian dollar declined against all other most-traded currencies today, including its riskier commodity-related counterparts. The possible reasons for the decline were the worsening market sentiment and bad domestic macroeconomic data.
The Aussie was rising yesterday but halted its rally shortly after Wednesday’s Asian session started. After trading sideways for a short while, the currency started to move lower. While it does not look that the extremely poor consumer sentiment report was directly responsible for the decline, the currency continued to move lower after its release.
The Westpac-Melbourne Institute Index of Consumer Sentiment plunged sharply by 17.7% in April after logging a relatively modest drop of 3.8% in March. That was the sharpest decline in the history of the survey. While the index did not reach the record low, the report said that “we cannot rule out the Index dropping below the historic low of 64.6 we saw in November 1990”. The report was not entirely negative, though, saying:

While the drop in confidence this month is severe, it could well have been worse. Despite the bleak and threatening backdrop, Australia’s pandemic experience to date has been much less debilitating than that of the hardest hit areas abroad. The number of cases is high but has not overwhelmed Australia’s health system, with recent evidence showing a clear slowing in new cases that indicates policy measures are working to contain the spread. These developments give some support to our view that the Australian economy will lift in the December quarter following three consecutive quarters of economic contraction.

As for the traders’ sentiment, it seems that markets have mixed feelings about the developments with the coronavirus situation. On one hand, it seems to improve, with the number of new confirmed cases falling in many countries. On the other, investors are worried that the global economy is going to be in terrible shape for a while after the pandemic ends. Not to mention warnings that the epidemic may return in autumn. Those considerations can explain the traders’ mood swings from day to day.
AUD/USD sank from 0.6441 to 0.6315 as of 10:45 GMT today. EUR/AUD climbed from 1.7042 to 1.7263. AUD/JPY tumbled from 69.06 to 67.81.

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