Market Mantra: Lockdown extension fears continue to weigh on Australian market

The Australian dollar continued to decline against all major currencies last week as the Delta variant takes firm hold over NSW.

Australian shares recorded a weekly loss last week as the nation stared at an extension of lockdown in NSW, the most populous state of Australia, due to a continuous surge in virus cases.

The authorities warned on Friday that the three-week lockdown in NSW could be extended to provide more time to contact tracer to get on top as Sydney continues to record a huge rise in locally acquired cases.

The announcement immediately battered the already beaten travel stocks with Flight Centre and Webjet bearing the major brunt of investors. Corporate Travel, Qantas and Sydney Airport also extended the decline.

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The technology sub-index also recorded its second consecutive weekly loss after Afterpay shed 5.2% on Friday.

Market-Mantra-Nasdaq; Picture Source: @CANVA

The financials were not much better with all major banks down. The finance sector fell by 1.2% for the week, ending down for two of the last three weeks.

Miners and energy stocks were the only ones that provided some boost to the investors as strong commodity prices and a weak Australian dollar boosted the sentiment. Miners were up for a third week running and the energy sector recorded gains for the second week in a row even though the oil prices remained under pressure most of last week.

While investors had been factoring in Sydney lockdown as a transitory stage the surge in cases has changed the equation with investors now unsure if Sydney will be locked down for a month or even longer. While there is some bullish sentiment to start the week on Monday following the US share rally last Friday that could soon fade if cases in Sydney continue to increase.

Apart from numbers in Sydney investors will also be keeping a close eye on June jobs data due later this week. Consumer and producer sentiment will be another data that investors will watch closely this week as they tend to provide clues about how people are reacting to the highly uncertain economic conditions.

Gold prices recorded their sharpest weekly rise in seven weeks to mark a third straight weekly advance. The move-in Gold bullion came as trade in the US subdued and US long-dated Treasury yields touched their lowest levels since February.

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From US tapering worries to virus cases picking up in Asia and Europe again, from economies opening up to lockdown in Australia, there is still plenty of uncertainty as to where the world economy is heading and that uncertainty is expected to show in Gold prices.

Australian Gold; Picture Source: @CANVA
Australian Gold; Picture Source: @CANVA

This uncertainty also means there is still a lot of wait-and-see approaches amongst gold traders. As such based on the technical analysis it seems gold would either need to clear resistance at the $1814 level or break the support around $1790 to provide trend directionality.

Oil prices were under pressure most of the week last week, however, Friday provided a big boost after a US government report showed rapidly declining stockpiles of Oil in the US and record-high fuel demand in the middle of peak travel season. Oil prices have been volatile recently due to the ongoing impasse among OPEC+ countries overproduction hikes. In the meanwhile, the WHO has urged caution on reopening worldwide as Delta variant spreads.

The Australian dollar continued to decline against all major currencies last week as the Delta variant takes firm hold over NSW. Against the USD further confirmed its break below the 200-day moving average. A bearish crossover between 20 and 50-day SMAs also offers a strong bearish trend for the Aussie against the greenback. Even though the RBA surprised the market with dovish statements about the economy last week and a change of stance to full employment in Australia, the Aussie dollar capitulated to the dismal market mood as the economic impact of continued lockdown in Sydney dragged the mood lower.

In other words, the traders looked disappointed with Reserve Bank continuing to maintain a dovish stance as traders focus firmly on lockdowns amidst increasing CoVid cases. The slow vaccination rate in Australia also continues to add to the negative sentiment and hence provided more control to the Bears.

Australian Dollar; Picture Source: @CANVA

The Indian Rupee also continued to drop as increased oil prices continue to impact the local economy negatively. A continued rise in oil prices is expected to edge India’s inflation to a seven-month high.

After terrible PMI data last week showing India’s service activity shrinking at the fastest rate in 11-months the investors will be looking at the Reserve Bank of India to stabilise the economy and provide intervention to curb an INR drop that India can’t afford.

In the world of Cryptocurrencies, Bitcoin and Ether cower under fire by global regulators again. Thailand joined China and Iran to ban cryptocurrencies while top US diplomats hoped El Salvador will complete a financing agreement with IMF after a dramatic move by El Salvador to adopt Bitcoin as legal tender from September 7.

The new law would mean Bitcoin will be on an equal footing with the dollar which became El Salvador’s official currency 20 years ago. US is hoping a financing agreement between El Salvador and IMF will help change its mind.

With 90% of all mining in China going offline a downside breakout is making it harder for Bitcoin to get a price recovery.

Bitcoin; Picture Source: @CANVA

With Bitcoin on verge of entering Bollinger downward channel, it seems in terms of cryptocurrency the Bears shall rule for now.

In agricultural products, the price of most grains hard a sharp fall as a drier than average summer reduced the yield potential. News from India especially that Indian farmers planted 10.43% fewer summer crops than the same time last year. Farmers in India typically start planting summer-sown crops on June 1 when monsoon rains usually reach India.

India, one of the world’s top agriculture producers, received 5% below average rainfall in June when the four-month monsoon season began. As per data released by Central Ministry in India, the rains were 46% below average last week.

Nearly half of India’s farmland is dependant on monsoon rains that provide 70%-90% of annual rainfall to these regions.

The market is at the crossroads though at this stage to see if we will get the rain to revive the yield potential for the summer crops or will the lack of rains continues to decline yield.

To be honest a lack of rain usually result in crops deteriorating and despite worries of grain shortage while rains remain elusive the prices will continue dropping.

Author: Ateev Dang is a trader and trading coach by profession. He runs Glow trades Pty Ltd where he teaches anyone who is interested in starting on their trading journey on how to trade. He can be contacted at adang@glowtrades.com.au.


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