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AUD touches fresh two year high as US dollar downturn deepens

AUD - Australian Dollar

The Australian dollar marked fresh year to date highs through trade on Monday, extending Friday’s gain and testing 0.74 US cents. In what was largely a quiet start to the week, with little headline data on hand and a distinct lack of market moving newsflow the AUD maintained its upward momentum extending gains beyond 0.73 amid ongoing US dollar softness. The Federal Reserve’s ultra dovish monetary policy platform and forward outlook continue to weigh on the world’s base currency allowing the AUD to continue its upward push. Having broken resistance at 0.7260 and the trading pattern between 0.7130 – 0.7260 the door is open for the AUD to extend its advance toward 0.75. With resistance forming on moves approaching 0.74, a consolidated break above this handle is needed if momentum is to be maintained.

Attentions now turn to the RBA and its monthly policy meeting. We expect policy makers will maintain the current program of bond buying and yield management while leaving rates on hold at 0.25%. The RBA, in recent communications, has reiterated its commitment to the existing program, judging the current package as appropriate for the current environment, while leaving the door open to loosen policy further and lower borrowing costs to stimulate the recovery if need be. With few surprises expected we anticipate the AUD will continue to meet resistance at 0.74 ahead of tomorrow’s GDP print.

Key Movers

The US dollar depreciation continued through trade on Monday, marking a fresh two year low to close the month 1.5% lower. The fourth straight monthly depreciation is the longest run of losses in three years and a clear signal there is little appetite for the world’s base currency. The Federal Reserve doubled down on its ultra-dovish monetary policy platform last week, amending its inflation management system and opening the door to an extended period of record low interest rates. With the FOMC reinforcing its bearish stance there is little scope for a near term dollar recovery.

The Euro continued its monthly advance pushing back through 1.19 to touch daily highs at 1.1960. The single currencies advance coincides with the dollars depreciation as investors shift focus away from the greenback in an attempt to chase a higher yield on expectations Europe will recover from the Coronavirus faster that the US. Having met resistance on approaches to 1.20 the resurgence of a second wave in infections is weighing on the Euro as the threat of reinstated lock down measures loom larger.

The Yen was the softest of the majors drifting lower against the USD and giving up gains won last week. The USD pushed back toward 106, touching intraday highs at 106.10 before correcting lower into this mornings open.

Expected Ranges

AUD/USD: 0.7280 - 0.7420 ▲

AUD/EUR: 0.6080 - 0.6230 ▼

GBP/AUD: 1.7920 - 1.8280 ▼

AUD/NZD: 1.0880 - 1.1050 ▲

AUD/CAD: 0.9580 - 0.9680 ▼