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Risk appetite falters, dragging AUD off new highs

AUD - Australian Dollar

Risk appetite faltered through trade on Thursday and with that the AUD upturn. Having touched intraday highs at 0.7162 the AUD was forced lower overnight, dragged downward by a push toward haven assets as investors balked following a surprise increase in US jobless claims. Markets were anticipating new unemployment claims would remain steady at 1.3 million and instead they rose to over 1.4 million, disrupting the trend of improving labour market data and highlighting a grim outlook moving through the latter half of the year. The AUD slipped back toward 0.71 US cents where it found some support and has since bounced off breaks below this new marker. A consolidated dip below 0.7090 could see a broader unwind of the week’s earlier gains.

Risk aversion continues to drive direction, as investor's demand for growth-led and commodity driven currencies oscillates between broader support and resistance handles. Having broken above 0.70/0.7030, we expect the AUD to face headwinds on moves beyond 0.7160 and approaching 0.72. Despite this weeks risk-on move there is still a great deal of uncertainty plaguing financial markets and as risk demand continues to moderate, upward forays require broader fundamental support if they are to hold with any real conviction.

Attentions today turn to European manufacturing and services PMI as key markers of improving economic health, while COVID-19 headlines and US Fiscal support debate dominate the risk agenda.

Key Movers

Despite gains against commodity currencies and a push to haven assets, the US dollar index fell through trade on Thursday as the euro continued its upturn, while the JPY and CHF outperformed. The single currency pushed back above 1.16, marking fresh intraday highs at 1.1625, its highest level since October 2018. Investors are moving to price in a quicker European recovery as the US remains mired in the depths of the COVID-19 pandemic and Congress continues to drag its heels in delivering extended stimulus support. With conviction behind the move away from the dollar growing, there is scope to suggest the euro upturn will continue, with broader risk aversion the primary threat to the current upward shift. If a risk-off mood takes hold of equities and key indexes begin to falter then we would expect a sudden push back toward the world’s base currency.

The Great British pound struggled again as talks with key EU officials ended with little progress made. Negotiations will continue next week, but there is little hope of a deal being reached in the near term, with both sides at loggerheads. With a hard Brexit firming as a more likely scenario, we expect sterling will continue to struggle with nothing but an 11th hour deal to save it.

Expected Ranges

AUD/USD: 0.6980 - 0.7200 ▼

AUD/EUR: 0.6080 - 0.6220 ▼

GBP/AUD: 1.7720 - 1.8180 ▲

AUD/NZD: 1.0630 - 1.0730 ▼

AUD/CAD: 0.9490 - 0.9620 ▼