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Australian dollar extends move beyond 0.72 and tests resistance at 0.7240

AUD - Australian Dollar

The Australian dollar outperformed most counterparts through trade on Thursday as commodity currencies led majors higher, amid ongoing US dollar softness and broader positive risk sentiment. Investors largely ignored a slew of disappointing earnings reports in Europe and instead drove equities and risk assets higher as the tech sector outperformed and drove the S&P 500 higher. The AUD consolidated a break above 0.72, testing 18-month highs at 0.7240.

Short-term direction continues to be driven by sentiment and expectations surrounding US fiscal stimulus talks. House speaker Nancy Pelosi said negotiations were progressing, but significant difference meant a breakthrough remained elusive. If lawmakers cannot reach an agreement by the end of the week, talks will likely be abandoned until concessions are made. If a deal cannot be reached, President Trump has committed to signing an executive order to ensure basic stimulus measures are made available and unemployment benefits resume. It seems at least some form of government relief will be available by next week, opening the door to volatility moving into the close and Monday’s open. We are watching resistance at 0.7230/40 with supports on moves below 0.713/0.71 intact for now.

Key Movers

The US dollar edged marginally lower on Thursday despite improved labour market data. Jobless claims fell sharply, printing below 1.2million down from 1.435million, the largest weekly decline in almost 2 months. The improved read eases concerns the labour market recovery was beginning to stall amid increasing COVID-19 cases and new social distancing restrictions. As the pace of coronavirus spread begins to slow, there is hope the recovery will enjoy a kickstart, but with numbers still 5-6 times larger than pre-pandemic levels, any sustained USD recovery will be heavily reliant on Government relief plans.

The Great British pound rallied toward 1.32 on Thursday after the Bank of England proffered a neutral tone and was perhaps less pessimistic toward the ongoing economic outlook than investors anticipated. Monetary Policy Committee members voted unanimously to keep rates on hold at 0.1% and maintain the current pace of QE purchases. While markets expected the board would refrain from wholesale adjustments, many had priced in a push toward negative interests’ rates. BoE Governor Bailey acknowledged that a shift to negative rates were in their toolbox but “we don’t plan to use them at this moment”. The affirmation the bank will avoid negative rates coupled with a downward adjustment in unemployment forecasts and the GBP extended its push above 1.31, testing 1.3180 and closing in on a break back above 1.32.

Attentions into the weekend remain affixed to the ebb and flow of risk sentiment, while US stimulus talks dominate short-term direction.

Expected Ranges

AUD/USD: 0.7130 - 0.7290 ▲

AUD/EUR: 0.6020 - 0.6130 ▲

GBP/AUD: 1.7980 - 1.8420 ▼

AUD/NZD: 1.0750 - 1.0880 ▼

AUD/CAD: 0.9520 - 0.9680 ▲