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Promise of a vaccine spurs risk on move, driving the AUD back through 0.65

AUD - Australian Dollar

The Australian dollar rallied on Monday rising steadily throughout the day, extending beyond 0.65 to touch intraday highs at 0.6527. Souring risk sentiment forced the AUD lower through trade last week as fears of a second wave of infections enveloped markets. That sentiment shifted on Monday as increased mobility across developed economies fostered hopes of a swift rebound in economic activity, while suggestions early trials of a vaccine by US pharma company Moderna were promising, and reports France and Germany have finally agreed an acceptable framework for a COVID19 bailout agreement helped bolster risk demand and drive equities and commodity currencies higher.

The AUD remains vulnerable to broader swings in risk demand as sentiment continues to shift amidst the ever changing, economic, geopolitical and global health outlook. Having found support on moves below 0.6380 the AUD appears to be forming a new short-term range between 0.6350 and 0.6550/70. While we expect volatility within said ranges to continue a break outside these handles will require a broader shift in the underlying risk tone. Longer term forecasts remain promising as Australia’s outstanding response to the coronavirus outbreak ensures the economy is well placed to open up more broadly than major counterparts, however as risk continues to dominate direction topside gains will remain hard won as the US dollar holds onto haven demand amidst the uncertainty.

Attentions today turn to the RBA’s monetary policy meeting minutes, while commentary from Fed Chair Jerome Powell and a G7 meeting dominate the offshore docket.

Key Movers

The Euro jumped through trade on Monday as the US dollar, Japanese Yen and Swiss Franc struggled to mount any upward momentum in the face of broadly positive risk on move. The combined unit pushed through 1.09 advancing eight tenths of a percent to touch intraday highs at 1.0926 after France and Germany announced a framework for a 500billion Euro bailout/recovery fund. Importantly the fund will allow the EU commission to borrow money direct from the market and issue grants, not loans, to those member states that desperately need support. While the agreement still requires the backing of all 27 member countries and resistance is expected from Austria, the Netherlands, Denmark and Sweden it is at least a step in the right direction, creating the foundations for a wider European agreement on joint debt.

The Japanese yen was the weakest of majors through trade on Monday as risk demand drove investors away from haven assets, while GDP data showed the Japanese economy shrank through Q1 with expectations Q2 will see an even bigger contraction as Coronavirus amplifies uncertainties.

The Great British Pound bounced of 8-week lows as broad based USD weakness and the risk on mood helps shift the focus away from stalled Brexit negotiations and suggestions the Bank of England may employ negative interest rates in a bid to bolster economic activity. Climbing off 1.2075 Sterling touched intraday highs at 1.2226 before edging lower into this morning open.

Expected Ranges

AUD/USD: 0.6380 - 0.6570 ▲

AUD/EUR: 0.5930 - .6050 ▲

GBP/AUD: 1.8680 - 1.9120 ▼

AUD/NZD: 1.0720 - 1.0850 ▼

AUD/CAD: 0.9020 - 0.9150 ▲