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AUD clings to 0.70 ahead of RBA QE announcement and US Election

AUD - Australian Dollar

The Australian Dollar maintained a narrow range through trade on Monday edging upward overnight having tested a break below 0.70 through the domestic session. The AUD made several forays below key technical and psychological supports as Friday’s risk off tone spilled into a new week. The implementation of new lockdown measures across Europe at the weekend only heightened fears a Q4 recovery has all but evaporated, prompting investors to adjust global growth expectations. Having touched intraday lows at 0.6995 the AUD recovered, extending back above 0.7050 to touch session highs just short of 0.7060.

Attentions remain affixed to this week’s key risk events with the RBA policy meeting dominating today’s agenda. The RBA has signaled changes to its monetary policy program will be issued and markets have priced in a 15-basis point rate adjustment. Our focus will be on QE and what the RBA does to try and lower borrowing costs over the longer term. It is expected bond purchases will target the 5-10-year part of the yield curve however there is varying consensus to the size and scale of purchases. Most expect policy makers will announce a $100-$120billion bond buying platform, however with little specific guidance offered there is scope for the RBA to disappoint. Should the RBA announce a smaller program, preferring to leave some ammunition in the holster as it looks to guide the economy through the COVID19 recovery, then there is some room for AUD upside as we shift toward the US election. Record numbers of pre-poll ballots have already been lodged meaning counting will likely take longer than usual and we may not have an official result until Thursday or Friday this week. A close race opens the door for a contested and protracted legal battle amplifying short term volatility.

Key Movers

Moves across currency markets were broadly muted through trade on Monday with the dollar index flat on the day, holding onto most of last weeks gains. The sell off across equities last week has largely failed to permeate currency markets as investors sideline bets ahead of this weeks US election. Biden maintains a comfortable lead in national polls, however the race remains much closer across key swing States. With a record number of ballots already lodged and the large swathes of voters expected to hit the polls on Tuesday it is likely the count will take longer than we are accustomed to. It is possible a clear winner does not emerge for at least 48-72 hours, opening the door to a contested and protracted legal battle. With President Trump still refusing to commit to a peaceful transference of power markets are simply hoping for a definitive outcome for either side so as to avoid short term volatility and uncertainty.

The Euro came under added pressure on open as new lock down measures were announce across the continent at the weekend. Investors ignored last week uptick in GDP numbers as month long shutdowns have all but dashed hopes the recovery will continue through Q4. Europe is struggling to contain the 2nd wave of COVID 19 infections and calls for longer and extended lockdown measures have grown in recent days. With many governments refusing to introduce the same widescale and sweeping lockdown measures of March and April there are fears the new measures will do nothing but slow the rate of spread and perhaps ease the immediate burden on the continents hospitals. The single currency has held above 1.16 as investors sideline bets until after the election. With the macroeconomic outlook so uncertain we expect corrections in Euro value through the days and weeks ahead as we move past todays key risk event.

Expected Ranges

AUD/USD: 0.6920 - 0.7180 ▲

AUD/EUR: 0.5950 - 0.6120 ▲

GBP/AUD: 1.7980 - 1.8520 ▼

AUD/NZD: 1.0580 - 1.0720 ▲

AUD/CAD: 0.9250 - 0.9420 ▼