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Aussie range bound as opposing forces contain broader moves

AUD - Australian Dollar

The Australian dollar opens marginally higher this morning having maintained a tight trading band for much of Thursday. Having slipped to intraday lows at 0.6964 the AUD moved back toward 0.70, a short-term resistance handle, after US-Mexico trade talks seemingly deteriorated. The AUD came under selling pressure early amid optimism the US and Mexico would reach some form of accord prior to the introduction of a 5% tariff next week, however a breakdown in talks prompted a USD sell off, forcing the dollar index toward 2-month lows. AUD upside was capped by markets demand for risk and the local unit struggled to mount any real upward momentum.

The AUD has been hamstrung by a souring in global appetite for risk, as escalating US led trade tensions, global growth concerns and European political uncertainty weigh on investors, prompting a push toward typical haven plays. This global souring and absence of risk appetite has prevented the AUD from capitalising on a reversal in USD expectations as mounting calls for a Fed rate hike and inferences of a shift in Fed rhetoric weigh on the USD. With a second RBA cut before the end of the year largely priced in and US/China trade negotiations far from complete the AUD remains vulnerable to deeper downside moves, however a recent shift in US economic expectations has provided a floor for the AUD and could help promote a move back toward and through 0.70.

Attentions today remain offshore as trade talks continue and the US non-farm payroll print provides another snapshot into the health of the broader US economy.

Key Movers

The US dollar fell through trade on Thursday as Mexico trade talks soured and calls for a Fed rate hike grew louder. The Dollar was down against the Yen, while the Euro pushed back through 1.13 and the dollar index struggled to bounce off two-month lows. Dollar yields have declined sharply of late as investors aversion to risk, coupled with a heightened likelihood of a Fed rate cut sapped investors demand for the worlds base currency. With Fed monetary policy now crucial to short term direction, attentions now turn to US non-farm payroll data as a marker for broader US strength.

The Euro bounced through 1.13 in the wake of the ECB policy decision as policy makers and president Draghi failed to meet markets Dovish expectations. Despite lower inflation and growth forecasts the ECB pledged to keep rates on hold through the 12 months while an early outline of its LTRO program appear less generous than previous stimulus packages. Having touched 1.1306 the combined unit corrected lower as German treasury yields faltered back to record lows and opens at 1.1276.

Expected Ranges

AUD/USD: 0.6880 - 0.7030 ▲

AUD/EUR: 0.6150 - 0.6220 ▼

GBP/AUD: 1.8020 - 1.8380 ▼

AUD/NZD: 1.0510 - 1.0610 ▲

AUD/CAD: 0.9280 - 0.9380 ▼