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Aussie touches 11 week high amid broad based USD weakness

AUD - Australian Dollar

With increased optimism filtering through the markets on Tuesday, the Australian dollar rallied to three-month highs against the world’s base currency. With the bulk of the gains coming during the North American session, the pair rose from 0.6580 to touch 0.6675. Investors are seemingly encouraged by increasing signs of economic recovery as restrictions continue to be lifted and economies are being reopened. This optimism has for now offset concerns of further escalations in the US-China tensions. Interestingly, the AUD/NZD cross fell from 1.0730 to 1.0690 as the kiwi outperformed.

On the domestic docket for today we have Q1 construction data, which is tipped to be dampened by massive disruption courtesy of the bushfires and the coronavirus pandemic. Although risks are skewed to the downside, it is not expected to be a market mover. New Zealand’s central bank will also be publishing its bi-annual financial stability report with traders keen to get a read on how the financial system is responding to the crisis. Later in the day we will have some industrial profits data out of China which is also expected to print on the softer side after a 34.9% contraction in March. Finally, overnight we will get some commentary from FOMC’s Bullard and Bostic as well as the Richmond fed index and federal reserve beige book.

With a lack of domestic impetus heading into today's session, we look for the Aussie to continue to trade on global risk sentiment. Currently, trading above previous resistance at 0.6650, a sustained hold above this handle will open up the possibility of a run towards 0.6700 and 0.6780 however on the downside, the pair remains vulnerable with weak support at 0.6600 before 0.6550.

Key Movers

With risk sentiment markedly higher amid growing signs of economic recovery from the COVID-19 crisis, commodity currencies, global equities and bond yields all outperformed on Tuesday. The S&P 500 rallied through the 3000 level to finish up 1.2% on the day, crystallising a three-month high in the process. This saw the defensive USD come under selling pressure, allowing EUR/USD to rise from 1.0920 to 1.0996 and kept USD/CAD on the back foot near its lowest level in 11 weeks.

The CAD was also aided by rises in commodities. Brent crude oil futures were up 1% to 35.90 with copper also rising 1.2%. Gold fell 1.3% on the day, consistent with the risk-on sentiment. The Broad based USD weakness also allowed the GBP to soar as rumours circulated that suggested progress was being made in Brexit talks. GBP/USD rallied to touch key resistance levels around 1.2363 on the day, with traders eyeing next Mondays round of Brexit talks.

Looking ahead to a pretty quiet day on the macroeconomic data front, centre stage will be occupied by a discussion by the Fed’s Bullard on the economy as well as the release of the US Fed’s Beige book. In the Asian session second tier data out of Australia and China will be of passing interest.

Expected Ranges

AUD/USD: 0.6537 - 0.6700 ▲

AUD/EUR: 0.5995 - 0.6075 ▲

GBP/AUD: 1.8490 - 1.8650 ▼

AUD/NZD: 1.0680 - 1.0750 ▼

AUD/CAD: 0.9140 - 0.9205 ▲