Market Mantra: Morrison’s phased reopening plan may boost Australian economy

The Australian dollar bounced back strongly on Friday after hitting seven-month lows against the US dollar.

Australian shares ended the turbulent week flat last week as virus cases surged in most of Australia. The market however received a boost on Friday after Prime Minister Scott Morrison announced a four-phase plan to reopen the economy from virus led lockdowns.

The announcement by the Australian Prime Minister in regards to reopening plan, where each phase requires a new vaccine milestone to be hit with a focus of suppressing Covid19 to a stage where it could be managed like any other infectious disease like the flu was seen as a positive even though many analysts agreed that at current vaccine rollout rate it may take forever to achieve.

PM Scott Morrison; Picture Source: The Australia Today
PM Scott Morrison; Picture Source: The Australia Today

Even though the milestones for each phase have not yet been set and will require modelling from epidemiologists and vaccine experts, the traders seem to have set aside the confusion and frustration surrounding the nation’s handling of pandemic and vaccine rollout and look set to hold up its upbeat mood.

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Last week also marked the close of the Australian Financial year. The Financial year 2020-21 marked the best year for Australian shares since 1987. However, the mood was impacted in the end by the rising coronavirus cases in Australia.

Surging oil prices also helped provide a boost to the energy sector with most energy stocks continuing to do well last week. Telstra also had a strong weekly gain last week rising 0.8% to $3.79.

oil price going up; Picture Source: @Canva
Oil price going up; Picture Source: @Canva

It was shared in English language testing IDP education though that rose by more than 20% after they announced that they will be the sole distributor of IELTS tests in a booming Indian market.

This week we are keeping a close eye on Carsales.com and Domain Holdings as the continuous rise in house and strong demands in car sales provide a boost to these companies.

Having said that, however, all eyes will be on the number of COVID positive cases in Sydney this week. With Australia’s daily vaccination rate remaining low at 0.4% of the population it has left the nation more vulnerable to the latest outbreaks which started in Sydney and Brisbane and spread to other states.

From previous observations, the snap lockdowns have resulted in a rapid bounce back in economic activities due to pent up demands. The long lockdowns on the other hand will have a much wider and deeper impact and may require more economic assistance at the Federal level.

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NSW especially is at a bigger risk having started the lockdown a bit later than what virologists suggest as an ideal scenario given the Delta variant, however, the good news is in some of the cases the lockdowns are ending or being wound back.

Gold prices climbed up last week as an increase in the unemployment rate in the USA for the month of June to 5.9% from 5.8% eased concerns about Fed tapering with interest rates any time sooner.

Even though US non-farm payroll numbers showed that there were 850,000+ jobs added in the US instead of the expected 720,000+ the spread was uneven with most job gains being in the hospitality and leisure sector as they return from the pandemic. The labour market in other sectors however was not strong enough to stroke fears that the US Federal Reserve will taper with the rates.

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

With Fed tapering fears easing the investors moved back into gold pushing the price higher.

Oil prices continued to rally for the sixth week as OPEC countries and Russia, collectively known as OPEC+, again delayed a decision about removing output curbs that were put in place during the pandemic to stabilise oil prices.

The OPEC+ nations continue to raise concerns about the need to maintain the balance between the impact of variants of the coronavirus in parts of the world and the higher demand in economies that emerge from lockdowns and stay-at-home protocols. 

An uneven labour data in the US helped all major currencies recover against the greenback. The Australian dollar bounced back strongly on Friday after hitting seven-month lows against the US dollar. Strong commodity prices may provide a boost to the Australian dollar this week and start a new rising trend for the local currency.

Australian Dollar; Picture Source: @CANVA

The Australian dollar also rose strongly against the Indian Rupee last week as INR was dumped against most major currencies with rising oil prices adding to economic woes for India. India is the world’s second-biggest oil importer and rising oil prices weigh strongly on Rupee sentiment.

The coronavirus cases in NSW may, however, continue to remain an area of concern and may result in vulnerable bouts of uncertainty for the Aussie currency. New Zealand dollar continues to provide a better alternative for traders due to their economy continuing to remain open.

In the world of Cryptocurrencies, Bitcoin continues to remain firmly within the trading range which we have been talking about for the past few weeks. However, with each passing week, it looks like eventually, the support will give away.

Bitcoin; Picture Source: @CANVA

Global regulatory crackdowns and energy concerns continue to weigh on the digital currency markets and a battle between broader acceptance and greater regulation could continue to stifle any price recovery.

The formation of a head and shoulder pattern on weekly Bitcoin charts is also a matter of concern for technical traders and a sign that bears may take strong control and take prices to as low as USD 24,791 soon. The charts hint strongly towards a change in momentum in favour of the bears and a breakdown of technical support may not bode well. Bitcoin would soon need to take over the critical resistance at USD 38,861 to change the bearish sentiment.

In agricultural products soy meal, barley, wheat and corn all received a boost after Iran issued a tender to purchase 60,000 tonnes for each of the four agricultural products. Record produce of corn in Argentina, the world’s third-largest corn producer and exporter were also not enough to bring the prices down. Argentina is also the world’s top exporter of processed soy and an important producer of wheat and thus stand most to gain from the tender issued by Iran.

A tender by Jordan to purchase 150,000 tonnes of wheat and that for 400,000 tonnes by Ethiopia initially boosted wheat prices, however, this was short-lived as China issued an order to buy 20,000 tonnes of frozen pork.

The price of live hog had fallen 65% since January as outbreaks of diseases resulted in panic selling. China last bought frozen pork in March 2019, when it purchased 200,000 tonnes of frozen pork.

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.


The writers’ opinions in the above article are their own and do not constitute any financial advice whatsoever. Nothing published by The Australia Today constitutes an investment recommendation, nor should any data or content publication be relied upon for any investment activities.

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