- AUD advances at start of new week

- Lowe says economy on road to recovery

- But South Australia reports new covid-19 infections

- Signing of RCEP deal underpins sentiment

Above: File image of Governor Philip Lowe (left). Photo Source: RBA on Flickr, reproduced with permission from the RBA press office.

GBP/AUD spot rate at time of writing: 1.8090Bank transfer rate (indicative guide): 1.7457-1.7583FX specialist providers (indicative guide): 1.7658-1.7750More information on FX specialist rates hereThe Australian Dollar starts the new week on the front-foot despite news of a fresh covid-19 outbreak in South Australia, a development that foreign exchange markets appear willing to overlook amidst rising stock markets and optimistic comments from the Reserve Bank of Australia's Governor Philip Lowe.

Adding to the positive sentiment towards the antipodean currency is the weekend signing of the RCEP trade deal, that analysts hope will ultimately prevent the development of a full-out trade war between China and Australia and will therefore contribute to an improved outlook.

The Australian Dollar rose against the U.S. Dollar, Euro and Pound Sterling after RBA Governor Philip Lowe told the CEDA Annual Dinner that the economy was now on the road to recovery, an observation that lead markets to question whether the Bank was likely to step back from providing additional monetary support to the economy.

"2020 has been a year of great change and disruption. We are all talking about issues that few of us even contemplated at the start of the year. Australia is managing well in these challenging circumstances and I expect it to continue to do so. The pandemic has been difficult for many people and businesses, but we are now on the road to recovery," says Lowe.

Australian Dollar strengthened in the wake of Lowe's speech that also confirmed negative interest rates are still extraordinarily unlikely in Australia, leaving the Pound-to-Australian Dollar exchange rate lower by a further 0.30% to quote at 1.8077, the Euro-Australian Dollar rate meanwhile retreated back to 1.6251 while the Australian Dollar-U.S. Dollar exchange rate advanced 0.30% to 0.7287.

Above: GBP/AUD sinks back into the middle of a medium-term range. Book your ideal rate automatically as soon as it is reached, learn how.

However, Lowe's upbeat assessment of Australia's response to the pandemic comes on the same day that authorities in the state of South Australia say they are facing a "dangerous situation" after reporting 18 coronavirus cases in the state's first outbreak since April, a reminder that the virus continues to tread an unpredictable path.

According to reports, up to 13 infections were linked to a hotel quarantine worker in Adelaide who spread the virus to a family in the local community, officials said.

The state has ramped up testing and brought in new restrictions. Australia had seen cases drop to near zero after beating a second wave that was largely confined to Victoria.

The small numbers involved in the South Australia outbreak are however unlikely to be met by harsh restrictions of the kind that could hamper Australian economic activity, and for now are unlikely to impact negatively on the Australian Dollar's trajectory.

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The Regional Comprehensive Economic Partnership (RCEP) is made up of 10 Southeast Asian countries, as well as South Korea, China, Japan, Australia and New Zealand.

"India’s absence in the pact has sparked disappointment for farmers in Australia who had hoped for a fresh export market. Despite fears of critics that the pact could be a Chinese Trojan horse allowing the world’s second largest economy greatest access to more markets, others argue that the deal will bind China to a multilateral, rules-based economic order," says Jane Foley, Senior FX Strategist at Rabobank.

The signing of the deal comes at a time of rising political tensions between Australia and China, which have seen a host of Australian agricultural exports suffer bans or import tariffs over recent months.

In addition, concerns for the future of Australian coal exports to China - coal is Australia's second-largest export - have also risen on reports authorities have told importers to stop bringing in Australian coal.

China has a list of technical reasons for the moves, however commentators in both Australia and China have said it is clear the measures are a retaliatory move of Canberra's robust demands for China to be held accountable for its role in the outbreak of Covid-19.

Despite India's absence, the view amongst analysts that the deal might bind China to a rules-based order is seen as an all-out positive for Australia, and therefore provides an element of downside protection in the event of rising trade-war risks.

"There's reason to be upbeat about the outlook for both AUD and NZD. A huge new free trade area is taking shape, and the least virus-stricken economies are back in business," says Kit Juckes, Global Head of FX Strategy at Société Générale.

Negotiations over the new RCEP deal began in 2012 and it was finally signed on Sunday on the sidelines of a meeting of the Association of Southeast Asian Nations (Asean).

Beyond Australian Dollar-specific developments, broader trends in global investor sentiment remain broadly supportive of the 'high beta' Aussie Dollar. High beta refers to the currency's positive correlation with investor sentiment, typically as expressed via moves in the S&P 500 index.

Markets rallied sharply at the start of the previous week and further gains at the start of the new week beginning Nov. 16 are underpinning the currency.

"The prospect of the Fed staying super-easy through the winter and beyond, while vaccine optimism builds is dollar bearish. Warnings not to get ahead of ourselves don't change that. The big winners in the longer-run are the higher-beta, growth and trade-sensitive currencies. CAD, AUD, SEK and NOK have further to go," says Juckes.

"I've banged on about buying AUD for a while and it still looks attractive, against both dollar and yen," adds the Soc Gen strategist.

A risk to the Aussie Dollar's outlook is a more protracted decline in stock markets; an outcome that could be triggered by a more restrictive response by U.S. authorities to the expanding covid-19 crisis.

"We continue to think risks are skewed to AUD weakness with incremental strength largely a function of much better risk sentiment. We see headwinds from USD strength, weaker sentiment on Australia-China trade tensions and think rate differentials could also weigh against the AUD over the short term. Australia rates climbed sharply last week but should ease again as panic subsides and on the RBA's bond purchases," says Wen Yan, a foreign exchange strategist at Barclays.