Coronavirus continues to be one of the more significant factors in determining the future direction of Forex markets. The divergence in the Covid-19 situations in different countries can provide direction in corresponding currency pairs. The U.S. is an outlier in the severity of the coronavirus situation compared to much of the rest of the world. This can have a bearish effect on the U.S. dollar when trading against the currencies of other countries that have been effective in suppressing the infections within their borders.
Worrying coronavirus situation in US
The Covid-19 situation in the U.S. may continue to weigh on the U.S. dollar, especially if the rest of the world recovers relatively faster. Much of the situation has been exacerbated by the incompetent and arguably negligent response by the Trump administration. With the U.S. still at relatively higher rates of deaths in proportion of population compared to many other countries, it might be a good idea for Forex traders to identify countries which have a much lower spread of coronavirus. Using the currencies of these countries to trade against the U.S. dollar can result in serious profits for currency traders using a reputable Forex broker.
One country which has seen much more success than the U.S. and most other countries in containing the spread of the virus is Australia. There are only two Covid-19 deaths for every 100,000 people in Australia while the U.S. has 26 times more at 53 coronavirus deaths for every 100,000 residents. Australia has largely avoided the rate of infections of the rest of the world due to strict lockdown measures taken. Although this has undoubtedly hurt the economy, it has also cemented the public’s trust in the government’s leadership, profoundly contrasting with the deteriorating confidence in the U.S. government’s competence.
Despite the drag on growth due to coronavirus lockdown measures, economic data coming out of Australia has been notably positive. Manufacturing and services industry data is suggesting growth while June retail sales increased by 2.7%. Also, The country’s trade surplus came in at 8.2 billion AUD in June which is an increase from the previous month at 7.34 billion AUD. Additionally, macroeconomic data from China, Australia’s largest trading partner, is also suggesting economic growth. All of these factors are bullish for AUD. When traded against the USD, the divergence between Australia and the U.S. on an economic, political and virus-management level, can provide significant market fluctuations which Forex traders could potentially capitalize on. Traders looking to profit on a strengthening AUD against the USD will need to register for an account with a solid Forex trading platform. This will provide you with access to the global currency markets where there is no limit on how much profit you can make.
A similar dynamic also exists when trading the USD against the New Zealand dollar. Similar to Australia, New Zealand has been largely successful in suppressing the coronavirus when compared to most of the rest of the world, including the United States. New Zealand has less than one death per 100,000 people due to Covid-19. Therefore, Forex traders with an account with a broker will be able to capitalize on this dynamic by shorting NZD against USD.
Weakness in US economy
Along with the poor response and incompetence of the U.S. government in slowing the spread of the coronavirus, there are some worrying signs for the American economy in recent economic data. Although housing and construction data is strong for the U.S., there are other economic metrics which suggest that the pandemic has caused significant damage to the economy. The United States NAHB Housing Market Index was 78 in August, suggesting strong growth. Also, U.S. construction spending was actually 0.1% higher in June than during the same period a year ago in 2019.
On the other hand, there is worry that the American consumer is being propped up by the stimulus checks and extra unemployment benefits from the Federal government and if these relief measures are not reinstated consumer spending will stop fueling the economic rebound. Despite consumers delivering strong retail sales numbers in July, many are worried about their situation. This is apparent in the weak consumer sentiment reported during this same period. Also, the NY Empire State Manufacturing Index dropped more than expected in August.
If growth in the U.S. economy significantly worsens, it can further exacerbate the divergence between USD and NZD and AUD. This can provide opportunities to short the U.S. dollar. However, this will require that you have an account with a legitimate Forex broker offering a solid trading platform.