So far this week the Australian Dollar has advanced 1.71 percent against the US dollar as risk appetite dominates the financial markets. Conversely, the Aussie increased 1.77 percent against the Japanese yen.
Yesterday, the Aussie rallied for the second consecutive day against the greenback, reaching a two-month high. Now that the economies are reopening there is a renewed appetite for risky assets in the markets – this has directly hindered the performance of the US dollar in the last two sessions. The US dollar index, which measures the greenback's performance against a bundle of its competitors, has lost 0.79 percent so far this week.
The optimism in the financial markets is being fueled primarily by the good news we're getting from the US. As we already mentioned, the US is now amid the process of reopening the economy, which has helped to alleviate the tensions in the financial markets. Besides this, market actors also learned from a conference board report on Tuesday that the consumer sentiment in the United States edged up after collapsing in April mostly due to the pernicious effects of the advance of the coronavirus outbreak.
"The severe and widespread impact of COVID-19 has been mostly reflected in the Present Situation Index, which has plummeted nearly 100 points since the onset of the pandemic," explained the senior director of economic indicators at the conference board, "Short-term expectations moderately increased as the gradual re-opening of the economy helped improve consumers' spirits," he added.
Nevertheless, risks are surging on the horizon, which could reduce investor optimism. Australia, which is heavily dependent on its commercial relationship with China, is now being targeted by Beijing because the Australian government called for an independent investigation regarding the origins of the Covid-19 pandemic. In turn, the Chinese government reacted by suggesting that Chinese consumers may retaliate by not acquiring Australian products.
President Donald Trump's recent attitude towards the Chinese regime is also stoking the nervousness in the markets. The commercial relationship between China and the United States was already going through a very difficult moment before the outbreak, though both sides were working on an agreement that was aimed at putting an end to the trade war.
The situation is in such a concerning state that Israel, which is known for being a solid partner for the US, has rejected the bids of a Chinese firm to invest in the largest desalination plant in the country. Instead, the Israeli government opted for giving the chance to an Israeli firm, claiming that its offer was better and cheaper. Analysts comment that Israel is being influenced by the United States pressure, which in the long run could hinder the commercial relationship between Israel and China even more.
Recently, the White House issued a press release saying that the US government is reconsidering its relationship with the Chinese government. In the release, while discussing the previous approach of the government towards the Chinese, the US government said that it's time to rethink the current "failed policies", claiming that they've not been successful in turning its rivals into benign actors and trustworthy partners.
This means that, besides having to consider a potential change on the current geopolitical order, we may be facing the scalation of a long-term trade conflict, which is not good news to China's traditional trade partners, among them Australia and New Zealand.
On the domestic side, the Australian government has been successful in placating the advance of the outbreak, with 7,139 infected individuals and only 103 deaths. Nevertheless, the fiscal effort the government is making to cushion the economic slump may run out in September, which is setting off the alarms.