The Australian dollar is trying to end a turbulent week on a firmer note as risk sentiment returned, while the bond market absorbed record government borrowing with aplomb.
The Aussie had rebounded 0.6 per cent to 63.70 US cent, having slipped as far as 62.64 US cents on Thursday. That left it up 0.3 per cent for the week but short of a one-month top at 64.45.
The New Zealand dollar bounced 0.8 per cent to 60.20 US, and away from a low of 59.98 US cents. It was still off one per cent for the week so far and well short of its recent high of 61.31 US cents.
Risk sentiment had got a boost overnight from a report an experimental drug had shown encouraging results in treating COVID-19 patients, though all the data had yet to be analysed.
Also helping was data confirming China’s economy a contracted sharply in the first quarter as it went into coronavirus lockdown, but looked to have improved in March.
Sean Callow, an FX strategist at Westpac, said the Aussie had rallied farther than he had expected, but suspected it would be dragged back toward $0.6000 by a wave of “brutal” economic data in coming weeks.
“Over the past month US equities and AUD/USD have carved out a V-shape that seems to match investor hopes that the global economy’s deep decline in Q2 will be followed by a sharp recovery,” he said.
“But even with glimmers of hope in slowing coronavirus infection rates, genuine recovery in economic activity, employment and profits is looking more like a hockey stick (shape).”
The Reserve Bank of Australia will offer its latest take on the outlook next week when Governor Philip Lowe gives a speech and a conference call on the economy.
The central bank should be pleased with how its new quantitative easing campaign has gone so far, managing to keep three-year bond yields down near its target of 0.25 per cent even while sharply scaling back the amount of debt it buys.
Having started in late March by purchasing $5 billion a day, on Friday it was down to just $750 million of debt.
That was all the more impressive given the Australian government was borrowing massive amounts of cash, with a record A$13 billion of a new 2024 bond sold on Wednesday.
Yields on 10-year paper have also eased to 0.88 per cent from a high of 1.03 per cent early in the week, even as the RBA chose not to buy as much long-dated paper as dealers had been hoping for.