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AUD falters on break above 0.74

AUD - Australian Dollar

The Australian dollar failed to extend gains beyond 0.74 US cents through trade on Tuesday amid profit taking and a USD bear market bounce. Having touched intraday day highs at 0.7410 the AUD drifted lower through the latter half of the domestic session and overnight as investors looked to square positions having marked a fresh 2-year peak. Investors largely ignored the RBA rate statement and policy announcement having priced in maintenance of the current policy platform. The RBA offered little beyond its recent commentary affirming its commitment to the current program, maintaining it is appropriate in the current environment if supported by ongoing fiscal stimulus.

Despite the US dollar correction, we expect the broader AUD uptrend will continue through the months ahead. Having lost its interest rate incentive there is little demand for the world’s base currency, underpinning the AUD rebound. With iron ore prices expected to remain elevated and broader risk sentiment positive the Aussie dollar is poised for a break toward 0.75.

Attentions today turn to a Q2 GDP data print. Expectations are for a sharp correction in growth between 5% and 6% as the economy struggled to grapple with the impacts of nationwide social distancing restrictions. A read at or near this level will likely have little impact on the currency, instead investors will be attuned to Q3 and Q4 performance as indicators of a rebound in economic activity. Watch the AUD trade between 0.7260 and 0.7420

Key Movers

The US Dollar crept higher on the day through Tuesday bouncing off 28-month lows amid a short-term profit taking. The world’s base currency remains under pressure with markets finding little incentive to reverse the recent trend. Despite yesterday bear market bounce we anticipate the dollar will continue its downward trajectory as market grapple with an extended period of ultra-loose monetary policy.

The Euro tested 1.20 Tuesday touching intraday highs at 1.2010 before shifting lower on US bear market demand. The Euro remains the primary benefactor of US dollar weakness, continuing its 2-month upturn to touch 28-month highs. Having failed to hold onto gains we expect ongoing resistance on moves approaching the key psychological handle.

Attentions today turn to preliminary US non-farm payroll numbers and commentary for Bank of England Governor Andrew Bailey. With Sterling largely flat through the last 24 hours investors will be keenly attuned to any commentary that suggests further monetary policy easing is imminent.

Expected Ranges

AUD/USD: 0.7260 - 0.7420 ▼

AUD/EUR: 0.6080 - 0.6230 ▲

GBP/AUD: 1.7080 - 1.8420 ▲

AUD/NZD: 1.0850 - 1.1020 ▼

AUD/CAD: 0.9550 - 0.9680 ▼