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Australian dollar continues bearish trend as risk sentiment declines

AUD - Australian Dollar

The Australian Dollar continued its bearish trend on Friday following a return to shaky equity prices in global markets this week. Risk appetite continued to improve till mid-week as the local currency regained all COVID-19 trading losses, hitting yearly highs of 70.60 US cents on Thursday. Seeing intraday highs of 0.6908 on Friday and a low of 0.6806, the local currency closed the week slightly lower at 0.6855.

All Ordinaries finished 1.9% lower on Friday, while Wall Street ended the week with gains of more than 1% on the day as investors looked for buying opportunities following large losses on Thursday. Concerns the market is overheated on the hopes of a V shaped recovery reared its head again following Federal Reserve Chair Jerome Powell’s comments that there will be a long road to recovery and caused a large spike in volatility levels not seen since April.

Another look at the dire state of domestic unemployment numbers during lockdown is due for release on Thursday. Economists surveyed show there is an expectation that the unemployment rate will hit 7% for the month of May with another 75,000 Jobs lost.

The Australian dollar opens this morning at 0.6840. We expect support levels to hold on moves approaching 0.6760, while any upward push will likely meet resistance at 0.6940.

Key Movers

The US Dollar Index (DXY) finished the week on an upward trajectory for its second day in a row of gains following a decline in risk sentiment. Fears of a second wave of infection in some re-opened states in America and China meant risk assets were out of favour and movements back into safe haven currencies including the US Dollar.

Closing at 97.09 after seeing lows of 96.49, the DXY was supported by a stronger than expected UoM Consumer sentiment reading due to the decline in jobless rates and potential reopening of the economy.

Another day of declines were seen for the Great British Pound as a plethora of disappointing economic data was released to market. GDP figures in the month of April saw the biggest contraction the United Kingdom had ever seen, showing a 20.4% decline and more than three times larger than the previous month. The lockdown saw large decreases in both Manufacturing and industrial production as GBP/USD declined to the 1.2500 handle.

It is a big week for central banks as Japan, Switzerland and the United Kingdom hold their monetary policy meetings. All central banks are expected to keep their negative interest rates on hold. In the United States unemployment claims will once again be a focus with retail sales for the month of May due for release on Tuesday evening. The markets immediate focus today will see Chinese retail sales and unemployment rate due for release around midday.

Expected Ranges

AUD/USD: 0.6760 - 0.6940 ▼

GBP/AUD: 1.8180 - 1.8500 ▼

AUD/NZD: 1.0580 - 1.0680 ▼

AUD/EUR: 0.6030 - 0.6120 ▲

AUD/CAD: 0.9220 - 0.9360 ▼