AUD - Australian Dollar
The Australian dollar finished higher on the day, buoyed by improvements in risk appetite and a broad-based USD sell off. The AUD was dragged back through 0.7150 as US equities signaled a firm shift back to risk, posting near record highs while downward pressure on real term US interest rates continued to weigh on the world’s base currency. The AUD appears well bid on moves approaching 0.7080/0.7100 and we expect that ongoing pressure on the USD will fuel further upside and an extension beyond 0.7230 moving through the weeks ahead. However, as US Fiscal stimulus negotiations remain unresolved, investors appear reluctant to extend the current bounds and a period of consolidation will likely hold until a final announcement is made. With talks again at an impasse, concern is mounting a short-term fix will not be found.
While the AUD struggles to break outside a 0.7100 – 0.7240 range against the USD, it continued its advance against the NZD. The NZD closed below critical support handles and the divergence in RBNZ and RBA monetary policy programs is forcing investors toward the Aussie dollar. The RBA’s yield curve management platform and aversion to negative interest rates have allowed real interest rates to return a higher yield in Australia. With the gap expected to widen we anticipate the AUD will extend its push beyond 1.10 and back above 1.12/1.13 through the medium term.
The US dollar gave up Tuesday’s gains, drifting lower against a basket of currencies through trade on Wednesday. Negotiations between democrats and Republicans remain at an impasse and while expectations a deal will be reached in the near term remain high, there is mounting concern partisan political agendas will prompt damaging delays to much needed COVID-19 relief. US Treasury Secretary, Mnuchin said on Wednesday “we may not be able to reach a deal on coronavirus aid”. Talks have stalled and the stalemate looks set to drag into next week, preventing fiscal support from flowing to over 30 million unemployed Americans. The dollar Index fell 0.3% and appeared poised to break back below 93, however gains against the yen and a dour GDP outlook in the UK helped counter losses suffered against the euro and commodity led counterparts. The euro pushed back toward 1.18, as investors continue the shift toward the single currency. The sharp decline in real US interest rates means the 3-month differential on yields now favours the euro prompting investors to chase a higher return amid prospects of a quicker economic recovery.
The Great British pound failed to take advantage of the USD downturn, dampened by an annualised GDP number that showed the British economy had entered a deep recession. Sterling did manage to hold above 1.30 though as improvement in growth numbers through June offered some respite to the dour outlook.
0.7080 - 0.7240 ▲AUD/EUR:
0.6020 - 0.6120 ▼GBP/AUD:
1.7980 - 1.8420 ▼AUD/NZD:
1.0830 - 1.0950 ▲AUD/CAD:
0.9430 - 0.9550 ▼