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AUD under pressure as US dollar momentum builds

AUD - Australian Dollar

The Australian dollar retreated through trade on Monday, giving up almost 2% to slip below 0.77 US cents. With little of note on the domestic docket the AUD succumb to broader US dollar strength as investors looked to correct positions on widening US treasury yields and expectations for increased Fiscal support. Having touched near three-year highs last week the AUD has come under some selling pressure as investors trim US dollar bearish bets. With hopes for a rebound in US economic activity on the back of a comprehensive immunisation program and increased fiscal stimulus measures there are signs the medium-term narrative is beginning to shift away from sustained US dollar weakness. With sentiment changing a run toward 0.80 through Q1 may be harder won. Having touched intraday lows at 0.7670 the AUD has crept back above 0.77 and buys 0.7703 at time of writing. Our attentions today remain with the broader risk narrative as we eye the performance of US treasury yields as a key marker for short term direction.

Key Movers

The US dollar extended last weeks gains through trade on Monday, lifted by a falling Euro and expectations for an increase in fiscal support. Having touched near three year lows at the beginning of last week the narrative has shifted through the last 3 sessions as investors begin to move away from inflation and monetary policy expectations toward hopes for a vaccine lead rebound and higher treasury yields. With Democrats now controlling both the House and the Senate markets are beginning to price in an increase to pandemic relief. While additional government spending would ordinarily hamper US dollar gains, widening treasury yields have helped cap losses and drive dollar support. While the shift in direction has not yet undermined the broader downward narrative there is now scope to suggest the US dollar could recouping losses through the medium term.

The Euro moved toward 3-week lows, giving up highs above 1.23 to shift to session lows at 1.2154, while Sterling drifted to intraday lows at 1.3450.

With little of note on the global macroeconomic docket our attentions remain with the broader narrative. We will be watching treasury yields as an early marker for shifts in direction through the sessions ahead. A further widening in US treasury yields and a break above November highs could prompt further US dollar upside.

Expected Ranges

AUD/USD: 0.7630 - 0.7820 ▼

AUD/EUR: 0.6290 - 0.6380 ▼

GBP/AUD: 1.7280 - 1.7680 ▲

AUD/NZD: 1.0680 - 1.0790 ▲

AUD/CAD: 0.9780 - 0.9890 ▲