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AUD storms higher as EU leaders spur risk demand

AUD - Australian Dollar

The Australian Dollar surged higher through trade on Tuesday, triggered by broad based US weakness and an uptick in risk demand following key fiscal policy announcements. Equities and risk sensitive currency lurched upward after EU leaders finally found an agreeable medium and announced details of its 750 billion Euro recovery fund. After weeks of back and forth the agreement is a crucial step forward in the European experiment, adding a much-needed fiscal injection to southern states devastated by the coronavirus. The Euro lead currencies higher forcing the USD sharply lower and allowing the AUD to push through resistance at 0.70/0.730, extending gains through 0.71 US cents to touch intraday highs at 0.7140, its highest level since May 2019. Added support came after Scott Morrison and Treasurer Josh Frydenberg announced the Job Keeper and Job Seeker programs will continue beyond September. Many analysts had feared a sharp correction in domestic economic performance once fiscal supports were removed. The extension affords small businesses and employees more time in bouncing back from the worst economic shock in 30 years.

Having waxed lyrical for weeks now about where a possible break may come from the move overnight opens the door for another risk on run. Markets continue to favour aggressive and extended fiscal support packages while ignoring the sustained run of negative coronavirus headlines. With hopes for a vaccine improving following recent clinical trials and governments amping up fiscal support efforts there is scope for further risk led upside.

Key Movers

The Euro led majors higher through trade on Tuesday following the announcement EU leaders had reached an agreement surrounding the distribution of the 750 billion Euro recovery fund. Power brokers Germany and France have been pushing the Frugal Northern States to agree the planned loan and grant platform and finally reach an agreeable medium with 390 billion to be issued as debt free grants and 360 billion as low interest loans. Italy, one of the worst hit by COVID-19 is set to receive over 200 billion, with 82b issued as grants and 127b in loans. The Recovery Fund is a huge step forward in a united EU and euro zone and the first step in collective debt obligations. The Euro pushed through 1.15 touching intraday highs at 1.1540 and marking its highest level since Q1 20119.

The US dollar fell across the board Tuesday as investors chased the Euro higher and sought risk currencies as optimism for a broader global economic recovery grew in the wake of the EU recovery fund announcement. The recovery fund plan puts in stark contrast the level of fiscal support issued in the US. The worst hit by COVID-19 congress has been slow to react to fiscal stimulus needs, weighed down by partisan demands as democrats and republican quibble over the best method for distributing support. While coronavirus numbers continue to rise lawmakers will sit to discuss details of a 1 trillion dollar package designed to replace the existing unemployment benefit scheme set to expire in August. With Republican leader Mitch McConnell said to Favour a direct cash injection with a new round of Cheques delivered to US households we will be closely watching the Hill through the coming days to better understand the extent of government support moving forward.

Expected Ranges

AUD/USD: 0.6930 - 0.7190 ▲

AUD/EUR: 0.6050 - 0.6230 ▲

GBP/AUD: 1.7720 - 1.8180 ▼

AUD/NZD: 1.0580 - 1.0780 ▲

AUD/CAD: 0.9430 - 0.9650 ▲