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Aussie bounces amid sharp USD downturn

AUD - Australian Dollar

The Australian dollar bounced off lows through trade on Monday, pushing back through 0.65 as broad-based US weakness and an upturn in risk demand helped counter the recent downward correction. Having touched intraday lows at 0.6465 the AUD rallied 1 cent to touch intraday highs at 0.6565 as investors largely ignored a sharp downturn in Chinese manufacturing data, instead pricing in a Fed rate cut later this month.

Opening this morning at 0.6534 attentions now turn to today’s RBA policy meeting and a conference call between G7 finance ministers and central bank heads. While we expect the RBA will stay on hold at 0.75% there are risks to its optimistic outlook as the likelihood of a coordinated global monetary policy adjustment in a bid to dampen the economic impact of the spreading coronavirus increase.

With two-way volatility expected to climb through the short term as risk sentiment continues to fluctuate, we expect the AUD will struggle on moves toward the upside. Watch resistance at 0.6580/90 and supports on moves approaching 0.6460.

Key Movers

The Great British Pound continued its slide through trade on Monday, marking new four and a half month lows against both the USD and Euro. Investors adopted a cautious approach when evaluating day one of trade talks between the UK and EU, forcing Sterling below 1.28 to touch 1.2770. Officials sat down in Brussels for the first round of post Brexit trade talks with markets keenly attuned to any sign Britain will accept EU trade rules. Investors remain wary both parties will continue to kick the can down the road and fail to reach a comparable compromise before the 11th hour of negotiations with Sterling highly vulnerable to any headline comment suggesting trade discussions have stalled. Essentially, we are entering Brexit 2.0 as the next phase of the divorce proceedings begin.

The US dollar slipped against a basket of major counterparts through trade on Monday as investors increased bets the Federal Reserve will cut interest rates in a bid to combat the downturn forced by the spreading coronavirus. The dollar index slipped to one-month lows testing 97.50 following comments from Fed Chair Jerome Powell wherein, he committed to acting appropriately to support the economy. Markets saw Powell’s comments as guidance an imminent rate cut is on the table with bets the FOMC will cut rates at its March 17-18 fully priced in.

Expected Ranges

AUD/USD: 0.6460 - 0.6580 ▲

AUD/EUR: 0.5780 - 0.5920 ▼

GBP/NZD: 2.0280- 2.0620 ▼

AUD/NZD: 1.0380 - 1.0480 ▲

AUD/CAD: 0.8690 - 0.8790 ▲