Incremental improvement in risk demand helps AUD climb back toward 0.7350
Wednesday 11 August, 2021
Daily Currency UpdateAUD - Australian DollarThe Australian dollar edged marginally higher through trade on Tuesday, touching highs just above 0.7350 amid an incremental improvement in risk sentiment. With little headline data or breaking news to drive direction, investors struggled to find a catalyst that would spark a definitive market movement. Having clawed back the losses suffered through late Friday and Monday, the AUD struggled to extend gains beyond highs at 0.7355 as markets grapple with competing forces. Despite the lockdowns plaguing the east coast, the AUD remains fundamentally undervalued and in normal circumstance we’d expect would be trading neared fair value at 0.77-0.80 US cents. However, concerns surrounding the delta variant continue to generate near term headwinds not just domestically but globally, restricting AUD gains and leaving the door open to further short-term softness. Until markets find conviction in direction, we expect the AUD will continue to bounce between support and resistance and a narrow handle. Our attentions now turn to US CPI inflation. After Friday’s robust non-farm payroll and labour market report, sustained evidence of elevated prices will add more pressure on the Federal Reserve to bring forward a tapering in Bond purchases, possibly prompting a sell off across risk assets.
Key MoversCommodity lead currencies outperformed on Tuesday, with the NZD, AUD and CAD topping the list of major currencies. The CAD in particular found support following a rebound in oil prices. Having plunged 4% on Monday, prices rebounded 2-3% on Tuesday as hopes demand will remain intact despite the impacts of the pandemic were bolstered. The USD dollar index remains largely flat as losses against the commodity currencies were offset by gains against the JPY, EURO and GBP. An improvement in risk sentiment forced the yen lower while the euro gave up 1.175 to test 1.17 touching lows at 1.1710 and the GBP touched lows at 1.3830. With little of note on hand to drive direction, investors appeared content sidling larger bets until after tonight’s US CPI inflation print. We anticipate some moderation in the headline read, but the devil will be in the detail. Leading indicators suggests input and supply constraints continue to plague the economy, and there is unlikely to be any reprieve from transitory inflation pressures. That said, any easing in Covid lead price increases, but a sustained price uptick could spark price action as expectations for few policies are adjusted.
- AUD/USD: 0.7290 - 0.7420 ▼
- AUD/EUR: 0.6190 - 0.6290 ▲
- GBP/AUD: 1.8720 - 1.8990 ▼
- AUD/NZD: 1.0430 - 1.0520 ▼
- AUD/CAD: 0.9150 - 0.9240 ▼