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Trade pressures and strong US data send AUD to bottom on recent ranges

AUD - Australian Dollar

The Australian dollar struggled to break outside what is becoming a familiar trading band, bouncing between support at 0.7270 and resistance on moves above 0.7330. Having edged toward intraday highs at 0.7337 the AUD retreated overnight slipping back below 0.73 amid Chinese trade concerns and a stronger USD. Reports the US will look to form a coalition of Western allies to jointly retaliate when China pushes its trade power to coerce its rivals, coupled with news it will issue a list of almost 100 US tech companies unavailable to China due to military ties dampened demand for the AUD as the Yuan fell sharply. The AUD is often considered a proxy to the Chinese Yuan given the close trade ties. The AUD came under added pressure following stronger than anticipated US manufacturing data. Having touched intraday lows at 0.7266 the Australian dollar has edged higher into this morning’s open and currently buys 0.7286 US cents.

With little of note on today’s domestic macroeconomic ticket our attentions remain with the broader risk narrative. We expect the AUD will continue to fluctuate between the current support and resistance handles. Any move beyond 0.7330/40 will likely run out of steam on approach to 0.74 while a break below 0.7270/60 should present a decent buying opportunity.

Key Movers

The US dollar advanced against a basket of major counterparts through trade on Monday, buoyed by a stronger than anticipated Manufacturing and services data print. Markit’s PMI report saw both sectors surge to their highest level since Q1 2015, defying the pressures of the pandemic and a lack of fiscal support. While investors typically ignore the data print, markets are becoming increasingly reactionary to real time economic performance as analyst attempt to measure the impacts of the COVID19 crisis and the time to recovery. The Dollar Index jumped over half a percent before creeping lower into Tuesday’s open.

The Great British Pound outperformed most counterparts, following stronger PMI data, vaccine hopes and optimism surrounding a EU trade deal. Service and Manufacturing PMI both enjoyed strong gains, while Oxford and Astrazeneca announced their vaccine trials showed similarly strong results when compared with Pfizer and Moderna, suggesting a 90% efficacy. With hopes vaccines will promote a return to pre-covid norms in 2021 focus turned to UK and EU Brexit negotiations. The Irish PM suggested they were closing in on a deal while Chief UK and EU negotiators suggested that while current areas of divergence remain a stumbling block the roadmap for a deal could and should be laid as early as the end of the week. Sterling surged to test 1.34 before retreating into this morning open. Attentions this week remain with Brexit negotiations. Even a partial trade agreement will lend Sterling and the Euro short term upside support.

Expected Ranges

AUD/USD: 0.7230 - 0.7340 ▼

AUD/EUR: 0.6080 0.6190 ▼

GBP/AUD: 1.8120 - 1.8480 ▲

AUD/NZD: 1.0480 - 1.0550 ▼

AUD/CAD: 0.9480 - 0.9620 ▼