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AUD upturn continues as risk demand improves

AUD - Australian Dollar

The Australian dollar outperformed again through trade on Wednesday, extending this current bull run, breaking through 0.6550. Risk sentiment continued to improve following reports Gilead Sciences drug, Remdesivir, had proffered positive results when tested against the coronavirus in a government led trial. Equities enjoyed strong gains and dragged risk sensitive currencies higher helping fuel demand for the AUD, NZD and CAD. Having consolidated gains above 0.65 the AUD found added support in broad based US softness following the Fed monetary policy meeting and rate statement. The Fed affirmed its commitment to the current monetary policy program, announcing it would employ whatever tools were necessary to see the economy through the COVID19 crisis.

The AUD has enjoyed strong gains through the latter half of April, recouping nearly all losses suffered in the wake of the mid-March crash. Improvements in demand for risk coupled with a relatively muted outbreak (when compared with major counterparts) in Australia has helped fuel the bullish upturn. Attentions now turn to Chinese Services and Manufacturing PMI’s as key markers of strength for the worlds second largest economy. Expansion across key industries will only add to the risk on mood and perhaps help foster a break toward 0.66. While the outlook for the AUD has improved dramatically in the past two weeks as global optimism recovers the prospect of a second wave of infections as social distancing measures eases and community integration increase remains a risk. A second outbreak will absorb recent gains in risk demand and could prompt a swift reversal of recent upside.

Key Movers

The US dollar fell for a third straight session, succumbing to improvements in risk demand and a commitment to uber loose monetary policy conditions from the Federal Reserve. Reports government trials of Remdesivir have proffered promising results helped bolster demand for commodity led and  emerging market currencies, while traditional safe havens were forced lower, under-performing against most major counterparts. The Dollar index slipped back below 100, losing three tenths of one percent and testing two week lows at 99.44.

Having touched a 3 year high in March the dollar has slowly edged lower marking a series of lower lows and lower highs as confidence across financial markets grows and risk demand improves. Attentions are starting to turn away from the virus itself with risk demand driven by the prospect of the global economy opening sooner rather than later. With the US still heavily entrenched in a battle against the coronavirus and the Federal reserve committing to a program of uber loose monetary policy measures the attractiveness of the worlds base currency is beginning to falter. That said, there are still a vast number of uncertainties that cloud forward guidance and the current risk on run is certainly vulnerable to a swift reversal. As long as the virus remains prevalent the USD will find risk based support.

Attentions today turn to the ECB and its monthly policy meeting. With no major policy announcement expected attentions still remain with EU leaders and the promise of a detailed coronavirus rescue plan. Until specifics are released we expect the Euro will remain vulnerable to further downside.

Expected Ranges

AUD/USD: 0.6280 - 0.6610 ▲

AUD/EUR: 0.5880 - 0.6080 ▲

GBP/AUD: 1.8780 - 1.9150 ▼

AUD/NZD: 1.0630 - 1.0730 ▼

AUD/CAD: 0.9020 - 0.9130 ▲