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AUD falters as risk appetite sours

AUD - Australian Dollar

The Australian dollar failed to maintain Wednesday’s upward tryst, slipping back below 0.73 US cents on Thursday as markets continue to grapple with near-term headwinds. Investors adopted a more wary tone as COVID19 case numbers in the US continue to increase with horrifying speed. New measures to slow the spread are now being introduced but there is a real sense it could be too little too late. The AUD struggled to maintain any momentum throughout the domestic session giving up gains despite better than expected employment numbers. Labour Force data showed strong improvements in employment across all states including Victoria with 179,000 new jobs added to the economy, well up on the 28K contraction expected. Despite the uptick in job creation a rise in the participation rate forced the employment rate to 7% a grim milestone. Having slipped below 0.73 the AUD came under added pressure following comments from Chinese Ministry officials, wherein they highlighted the grievances and threats to the current status quo suggesting the long-standing relationship faced “serious difficulty”. China is Australia’s largest trade partner; an unsteady relationship certainly raises questions about demand for Australian exports and adds downward pressure on the AUD.

Attentions remain with the broader risk narrative with AUD well supported above 0.7230/0.7180 while forays above 0.73 will likely face headwinds as markets weigh the short-term impacts of a spreading COVID19 virus and the long-term optimism that comes with a vaccine and re-opened global economy.

Key Movers

The US dollar rose against a basket of major currencies for the first time this week as markets placed greater weight on short term headwinds. Fears the global economic retracement will only worsen in the weeks and months ahead weighed on risk demand. New restrictions in the US, led by the closure of face to face learning in New York Schools, created a risk off environment that drove equities and stocks lower and added demand to haven assets. The USD, CHF and JPY all benefited from the shift in sentiment, while the Euro crept marginally lower. Optimism surrounding recent vaccine headlines faded Thursday as the reality a widespread immunisation program won’t be available or complete until well into 2021 weighed on investors. Speculation further Fed easing will be introduced to boost activity helped ad a floor under the risk sell off there is growing demand for Fiscal stimulus to fill the gap between the worst of the pandemic and recovery when monetary policy will be most effective. With US fiscal stimulus bogged down by partisan politics and hiccups in the issuance of Europe’s rescue plan a broader risk off correction may take off. For now sentiment remains largely positive and we expect markets will maintain this bias in the immediate near term.

Expected Ranges

AUD/USD: 0.7230 - 0.7340 ▼

AUD/EUR: 0.6080 - 06190 ▼

GBP/AUD: 1.8020 - 1.8380 ▲

AUD/NZD: 1.0490 - 1.0580 ▼

AUD/CAD: 0.9480 - 0.9560 ▼