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Risk narrative boosted by vaccine hopes

AUD - Australian Dollar

The Australian dollar made fresh 10-week highs through trade on Monday, extending beyond 0.73 US cents. Last weeks risk on mantra continued into the new week as investors pushed equities to record highs and sent safe haven currencies plunging lower. Already buoyed by former Vice President Joe Biden’s victory markets found added scope for optimism following reports Pfizer and BioNtech’s Covid19 vaccine is reportedly 90% effective in preventing Covid19 disease, an incredible result and a strong indication a viable vaccine can be found. The higher appetite for risk drove the AUD to intraday highs at 0.7340 before profit taking prompted a retreat below 0.73 and a narrow 20-point range into this morning’s open.

Attentions remain with the current risk narrative with investors seeking any excuse to extend gains beyond the current resistance threshold. With the Trump campaign still actively contesting the election results, amid claims of voter fraud, there remains a modicum of caution. The incumbent still has 70 days left in office and there is a sense he may use the time to further undermine the election process. That said, there is a growing call for the President to concede. A clear-cut Biden win and further positive COVID 19 vaccine news will likely drive the AUD toward recent highs as the risk narrative regains momentum.

Key Movers

Haven currencies and the USD were the days big losers, plunging lower amid a sustained risk narrative. Buoyed by the Biden/Harris victory and reports Pfizer’s vaccine could be more than 90% effective bolster market demand for risk assets, driving equities toward record highs while dragging the JPY, CHF and USD lower. The JPY fell over 2% and the CHF gave up 1.5%, while commodity currencies soared. Outside the AUD and NZD the Chinese Yuan tested new highs touching 6.5501, while the Norwegian Kroner, Swedish Krone and Canadian dollar all enjoyed strong gains as oil prices surged. Hopes for a viable vaccine have bolstered expectations for global growth prompting a sharp correction across bond markets as investors adjusted expectations for monetary policy stimulus. A successful and widespread community immunization program should allow the re-opening of the global economy, bolstering hopes domestic markets can still rebound throughout 2021.

Attentions remain affixed to the risk narrative for now with haven currencies to remain under pressure.

Expected Ranges

AUD/USD: 0.7190 - 0.7380 ▲

AUD/EUR: 0.6080 - 0.6230 ▲

GBP/AUD: 1.7890 - 1.8220 ▼

AUD/NZD: 1.0620 - 1.0750 ▼

AUD/CAD: 0.9390 - 0.9520 ▼