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Political tensions weigh on the Australian dollar

AUD - Australian Dollar

The Australian Dollar finished the week above 70 US cents for the first time this year and hit 15-month highs against the Greenback. The pair finally pushed through the psychological 70 US cent resistance level as testing on multiple occasions since June. It was multiple fiscal policy approvals by both the Australian Government and European Union leaders providing the catalyst for the local currency to hit highs of 0.7183 on Wednesday evening.

Given the speed of the rally, it was inevitable that some profit taking took place into the weekend, falling further following the news that China ordered the US to shut its consulate in Chengdu as tensions between the two countries flare up. Risk sentiment declined sending the AUD/USD to an intraday low of 0.7064 before closing the week in positive fashion at 0.7105.

Investors look this week towards the latest inflation print for the second quarter of 2020 on Wednesday. It is expected that we see a significant drop of approximately 2% and the biggest fall since records began in 1947. Free childcare as part of the governments stimulus measures up until July is likely to reduce the number by 1.1% alone. The record number is likely to keep interest rates set by the Reserve Bank of Australia on hold till at least 2022.

The Australian dollar opens this morning 0.7090. We expect support levels to hold on moves approaching 70 US cents, while any upward push will likely meet resistance at 0.7160

Key Movers

The US Dollar continued its dive this week, descending another 0.5% on Friday and nearly 2% on the week as investors flocked to the Japanese Yen on news that tensions had once again increased between the United States and China. Both sides ordered closures of consulates in their respective currencies sparking a sell off for the worlds most traded currency. The US Dollar Index (DXY) which measures a basket of currencies against the Greenback fell from 96.01 on the Monday open to 94.35 on the weekly close.

The Euro soared to a 21-month high this week as it was bolstered by the announcement by EU leaders that they had reached agreeable terms to its €750 billion recovery fund to support implications of COVID-19 on the economy. Eventual highs were seen on the EUR/USD cross of 1.1658 following a number of positive Manufacturing and Services PMI numbers from both France and Germany. The single unit currency eventually gained 2% on the week.

As we look to this week the headline news will be the release of the latest Federal Reserve Bank interest rate decision where it is widely expected rates will remain at record lows. More importantly it is likely that market participants will be eager to see the release of the FOMC statement where it is expected the Fed will take more of a dovish tone given the economic struggles at present in the United States and globally.

Expected Ranges

AUD/USD: 0.7040 - 0.7160 ▼

GBP/AUD: 1.7720 - 1.8100 ▲

AUD/NZD: 1.0650 - 1.0750 ▼

AUD/EUR: 0.6060 - 0.6140 ▼

AUD/CAD: 0.9480 - 0.9600 ▲