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AUD recovers weeks early losses but is upturn running out of steam?

AUD - Australian Dollar

The Australian dollar rallied through trade on Thursday recouping losses suffered through the risk off downturn at the start of the week, pushing through 0.64 to touch intraday highs at 0.6404. Despite a slew of dire macroeconomic data sets, commodity currencies led gains overnight as oil prices continued their recovery. West Texas Crude was up nearly 25% unwinding the weeks early shift into negative territory while Brent Crude pushed back through $20 a barrel to hit $21.50. The uptick in oil prices and the promise of more Fiscal stimulus from Europe helped fuel risk demand pushing the AUD toward the top end of recent ranges. Having touched highs at 0.6404 the AUD edged lower through the latter hours of the US session as resistance on moves above 0.64 prompted profit taking and a marginal correction. The AUD upturn is running out of steam as attentions start to turn to a host of unsettling macroeconomic indicators flooding the economic docket. While markets have largely priced in significant softness, data sets are printing well below expectations as the coronavirus lockdown shutters the global economy. Investors appear reluctant to significantly extend AUD upside as uncertainty remains so high and we expect resistance on moves approaching 0.6430/0.6460 while short term supports at 0.6250 and 0.6170/80 remain intact.

While appearing range bound against the USD, the AUD has enjoyed sustained upside against other key major counterparts enjoying strong gains against both the NZD and euro. Expectations for a prolonged and extensive QE program in Europe and a divergence in monetary policy between the RBA and RBNZ has helped the AUD bounce off lows suffered in mid-March. Having tested a break above 1.06 the AUD now sits at 5-month highs against the NZD while pushing through 0.59 against the euro.

Key Movers

The US dollar index continued its week long advance, driven higher by broad based euro weakness. A slew of poor manufacturing and services PMI reports highlighted the scale and breadth of the economic impact fostered by the coronavirus lockdown while EU leaders failed to agree terms surrounding an appropriate rescue package urgently required to prop up the embattled common market. Germany, Austria and the Netherlands countered calls from southern members and France demanded more detail as to how the 2 trillion euro recovery fund would be issued, preferring a loans-based system as opposed to the grant structure proposed. The uncertainty surrounding the rescue package weighed on the combined unit forcing a break below 1.08 as the euro touched 1.0755.

Sterling rallied through trade on Thursday despite weakness across domestic manufacturing and services data. Investors were prepared for softness and largely ignored the dire read that printed well below even conservative approximations. PMI fell to a record low of 12.9, down from 36 in March and well-off estimates at 31.4. The scale of collapse, while ignored for now, serves to highlight the headwinds that lie ahead for the British economy. UK businesses are in turmoil as they try and combat the effects of the lockdown while preparing for what will likely be a hard exit from the European common market come the end of the year. A large swathe of companies are simply running at zero output and stimulus packages don’t appear to be filtering through quick enough to save some small and medium size entities with estimates 500,000 businesses will be lost before the crisis ends. Britain continues to struggle to contain the pandemic and as such, lockdown measures are expected to be in place in some form or another through the foreseeable future adding mounting pressure to the GBP as we look beyond the short term and toward 2021.

Expected Ranges

AUD/USD: 0.6180 - 0.6430 ▲

AUD/EUR: 0.5830 - 0.5990 ▲

GBP/AUD: 1.9180 - 1.9630 ▼

AUD/NZD: 1.0550 - 1.0650 ▼

AUD/CAD: 0.8920 - 0.9030 ▲