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Australian dollar makes fresh multi-month highs as risk-on narrative continues

AUD - Australian Dollar

The Australian dollar made fresh multi-month highs on Thursday, extending gains despite a shift in equity markets. While global equity markets faltered on Thursday as investors paused to take stock of recent gains, currencies enjoyed increasing demand for risk, driving commodity and growth sensitive units higher. The AUD touched intraday highs at 0.6989 before edging lower into the daily close and this morning’s open. The Australian dollar has become the favoured proxy growth currency with investors sustaining the recent upturn, on hopes the economic recovery is running ahead of schedule. While there is a hint this weeks run may be overdone, short-term and medium-term forecasts offer ample scope for extensions in the recent rally. A break above psychological resistance at 0.70 could spark another upward run and lead the AUD on toward 0.71 and 0.72.

Attentions today remain squarely attached to global risk trends with US non-farm payrolls headlining the macroeconomic ticket. While models suggest there is still upside available to the AUD there are still hazards in play that could force a correction. The disconnect between fundamentals and direction, as risk drives demand, leaves the door open to a swift reversal should risk sentiment suddenly sour amid a second wave of infections or failed economic rebound. We continue to watch data trends and market sentiment as key indicators guiding risk appetite.

Watch resistance on moves approaching 0.70 with supports in play on moves below 0.6880 and 0.6780.

Key Movers

The US dollar remains under pressure entering the end of the week as currency markets enjoy an ongoing increase in demand for risk. Despite an uptick in US treasury rates with yields up nearly 1% to their highest level since mid-March, the world’s base currency was forced lower as growth sensitive currencies continued their upswing while the euro rally extended amid increased fiscal and monetary policy stimulus. The ECB surpassed market expectations overnight delivering an expanded QE program, increasing the pace of bond purchases and extending the program into June 2021. The ECB increased its Pandemic Emergency Purchasing platform by 600m dollars, 100 million more than markets anticipated, a clear signal policy makers are looking to get ahead of the curve and drive a recovery in growth across the region. The increase in monetary policy stimulus coupled with new fiscal support from Germany and the promise of EU’s 750 billion euro recovery fund drove the combined unit higher, extending beyond 1.1350 to touch highs at 1.1360. Having rallied 5% since May 25th the euro is poised to extend gains as there is a mounting sense the US is beginning to lag behind major counterparts when it comes to the issuance of fiscal support. Discussions between democrats and republicans for an additional $1 trillion in government support are underway, however it is unlikely anything will be agreed before the July recess, meaning any program of support will not be available until the end of July at the earliest.

Attentions today remain with the risk narrative with US non-farm payrolls dominating the macro docket.

Expected Ranges

AUD/USD: 0.6780 - 0.7020 ▲

AUD/EUR: 0.6020 - 0.6220 ▼

GBP/AUD: 1.7880 - 1.8220 ▼

AUD/NZD: 1.0680 - 1.0820 ▼

AUD/CAD: 0.9280 - 0.9450 ▲