EU’s Recovery Fund & RBA’s Rate Cut; DXY Loss?

EU’s Recovery Fund &
RBA’s Rate Cut; DXY Loss? 

The 27 members of the European Union (EU) reached
consensus on the COVID-19 Recovery Fund worth €750B during late Tuesday Asian
trading session. The bloc dragged the summit meeting started over the weekend
and finally reached an agreement to support EU countries that had been damaged
by the pandemic.

Previously, the deadlock for the stimulus plan was
concerns from Austria, Netherlands, Denmark, and Sweden over how the funds will
be used. The four countries finally accepted the final deal, where €390B will
be grants while €310B will be in loans. The difference is the grants are
non-repayable; money given by governments to individuals and businesses.
Whereas loans are repayable given by banks to individuals and businesses.

The stimulus package aims to provide monetary support
to boost spending activity and overall economic growth, which were previously
jeopardized by the pandemic. The large sum will be able to speed up the
economic recovery at the same time boosting the overall inflation.

Elsewhere, Governor Lowe stated during the Reserve
Bank Of Australia (RBA) speech early Tuesday that inflation is expected to stay
low for quite some time while commenting on the probability of another rate cut
to 0.10% from 0.25%. He also said that the lockdown in Melbourne is very
concerning, given the latest outbreak in Victoria.

News from both sides that would normally drag their
currencies lower was traded higher instead during European trading session.
Market sentiment now focuses fully on the recovery of respective economies,
instead of the supply of the currencies. Furthermore, the over-extended loss in
the DXY also provided upward support for both the euro and the Australian
dollar.

The latest progress on the COVID-19 vaccine also
contributed to investors’ risk appetite and their optimism towards the recovery
of the global economy. The DXY, which holds on to its’ safe-haven properties,
has extended its losses to a four month low.