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AUD range bound as risk sentiment fluctuates

AUD - Australian Dollar

The Australian dollar remained largely range bound through trade on Wednesday, bouncing between 0.6870 and 0.6915. With little headline data available and a lack of market moving news flows on hand currency moves were relatively modest as investors appeared to sit back and assess concerns surrounding an uptick in Coronavirus infection rates across the US and China. Fears of wide spread infection across Beijing forced Chinese officials to land internal flights, shut schools and lock down infected suburbs in a bid to control the outbreak. The aggressive containment measures forced the AUD toward intraday lows at 0.6859 as expectations for a China led economic rebound begin to fade. The Australian Dollar then found some support pushing back toward 0.69 as Fed Chair Jerome Powell prompted an uptick in demand for risk, wherein he reiterated the Fed’s current position and implored US lawmakers to increase fiscal support packages in a bid to bolster the economic recovery.

Attentions today turn to the domestic labour market report with, employment change and unemployment numbers due. A poor read and surprise excessive increase in the unemployment rate could prompt a break below support at 0.6850. Shifts in risk sentiment amid growing concerns of a second wave, especially as the number of cases across the US increases rapidly will also drive direction. Watch resistance on moves above 0.6950 and support on moves approaching 0.6850 and 0.6780.

Key Movers

The US dollar edged marginally higher through trade on Wednesday, when measured against a basket of major counterparts. The dollar advanced against the Euro and GBP while retreating against its safe haven companions and remaining relatively range bound against growth and commodity sensitive currencies. Risk sentiment fluctuated amid the promise of sustained monetary policy support and a rise in coronavirus cases. Investors were buoyed by comments from Fed Chair Jerome Powell, wherein he re-iterated to US lawmakers the FOMC’s commitment to its current monetary policy program. The assurance of a sustained period of monetary policy stimulus emboldened markets and helped bolster demand for equities and risk assets. However, a surge in new infections across several US states did prompt some safe haven dollar buying. New Cases in Florida jumped nearly 3.5% bringing the rolling 7 day read to its highest level since the outbreak began. Despite the uptick in community transmitted cases the Governor has given little indication they intend to roll back the economic re-opening and re-introduce lockdown measures. The uptick in Florida perfectly illustrates just how far the US has to go before the pandemic is really under control and has forced many investors to begin pricing in a sustained downturn and elongated economic recovery as the broader medium-term dollar outlook remains negative.

Attentions today turn to US unemployment claims and the Bank of England’s monthly monetary policy statement and minutes. We anticipate the MPC will maintain the current cash rate at 0.1% while increasing its bond buying program. With the bank expected to meet its current QE targets in July the scale of bond purchases will likely increase by 100billion GBP. The ECB is also set to issue a new round of long-term bank loans. While deposit rates will likely remain at -0.5% the bank is expected to make borrowing rates more attractive in a bid to stimulate lending.

Expected Ranges

AUD/USD: 0.6780 - 0.6960 ▲

AUD/EUR: 0.6030 - 0.6190 ▲

GBP/AUD: 1.7920 - 1.8480 ▼

AUD/NZD: 1.0620 - 1.0720 ▼

AUD/CAD: 0.9280 - 0.9420 ▲