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Australian dollar holds onto gain despite USD bounce

AUD - Australian Dollar

The Australian dollar consolidated moves above 0.66 on Wednesday, edging upward and touching intraday highs at 0.6625. Having trended lower as investors looked to take profit and advantage of the short-term recovery, the AUD touched morning lows at 0.6580 before fourth quarter GDP printed above expectations and a resurgence in appetite for risk prompted another upward drive. The Australian economy expanded at a faster pace through the 3 months to December 2019 up 0.5% and shrugging aside calls the economy was headed for a contraction. The surprise uptick helps provide a small buffer ahead of an anticipated Q1 downturn. Estimates suggest the economy will contract by approximately 0.7% through January, February and March as the bushfires and coronavirus douse broader economic activity. Having cut rates on Tuesday we would expect the RBA will be forced to cut rates again with the lower bound for bench mark rates adjusted to 0.25%. With the prospect of Quantitative Easing now a real possibility we expect AUD upside to be capped through the medium term. Attentions today turn to domestic retail sales data.

Key Movers

The US dollar bounced off 8-week lows through trade on Wednesday, creeping higher against a basket of major counterparts and recouping some of the losses suffered in the wake of the Fed’s emergency rate adjustment. An acceleration in growth across US services and private employment data helped bolster confidence in underlying economic strength despite the impacts of coronavirus and helped fuel an uptick in the dollar index and push back above 97.

The Euro moved lower through trade on Wednesday as markets begun pricing in an imminent monetary policy adjustment. The European Central Bank is expected to follow the Federal Reserve in cutting interest rates next week, pushing the benchmark rate even further below zero. Markets are pricing in a 90% chance of a 10 basis point cut and forced the combined unit back toward 1.11.

The Canadian dollar moved lower through trade on Wednesday after the Bank of Canada slashed interest rates. The monetary policy setting committee issued a 50 basis point rate adjustment in a bid to pre-empt a broader economic slowdown driven by coronavirus, promising further rate cuts if necessary. Falling through 0.7450 the loonie touched intraday lows at 0.7446 and remains vulnerable to further adjustments in risk appetite as the global economy stalls.

Expected Ranges

AUD/USD: 0.6460 - 0.6680 ▲

AUD/EUR: 0.5850 - 0.5980 ▲

GBP/AUD: 1.9250 - 1.9480 ▼

AUD/NZD: 1.0420 - 1.0550 ▲

AUD/CAD: 0.8780 - 0.8920 ▲