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Risk aversion forcing AUD below 0.77

AUD - Australian Dollar

Having slipped below 0.77 US cents into the close last week the AUD struggled to arrest the downtrend through trade on Monday, tracking toward intraday lows at 0.7659. With little of note on the domestic docket to drive direction the AUD succumbed to a broader sell off across commodity currencies as a renewed souring in risk demand forced investors toward haven assets. Short term headwinds continue to outweigh medium term optimism as the pandemic worsens extending the timeline for recovery.

Our attentions today remain with market sentiment as we eye supports at 0.7640 and 0.76. With the USD building off last weeks rebound and extending off 3-year lows we will be looking for any signal risk demand will improve through the week. With the US inauguration expected to prompt further uncertainty in the US and the impending impeachment possibly blocking the Senate from passing much needed stimulus a boost to risk demand may be wanting. We expect the AUD to remain largely range bound through the short-term holding between 0.75 and 0.7850.

Key Movers

Safe haven assets led gains across majors last night as investors shifted away from emerging markets and commodity currencies amid worsening COVID conditions and short-term headwinds. The JPY and CHF both outpaced major counterparts as concerns growing infection numbers will mean longer national lockdowns and an extended timeline to recovery. The Great British Pound drifter toward intraday lows at 1.3520 as official reports showed the highest number of fatalities for a Sunday since the Pandemic began. The impact of national lockdowns in the UK has been slow and while numbers are trending in the right direction, hospitalisations remain shockingly high as 2 Brits are hospitalized every minute with COVID 19. With lockdowns expected to remain in place until March at least the government continues to push its vaccine roll out, however with estimates a full program will not be complete until September the realities of another year of COVID 19 restrictions are beginning to weigh on investors medium term optimism.

Our attentions this week remain with pandemic and the short-term risk response. We look to Biden’s inauguration on Wednesday for a peaceful transition of power, with protests expected across the country, increasing violence could add further weigh behind the recent risk off shift. On the macroeconomic front we look to European and US PMI data as key markers of recovery. A softening in German and French performance could prompt further divergence in economic activity between Europe and the US and weigh on the combined unit. We are watching supports at 1.20 for now with a break below this handle a possible signal of further Euro weakness.

Expected Ranges

AUD/USD: 0.7640 - 0.7790 ▼

AUD/EUR: 0.6310 - 0.6420 ▼

GBP/AUD: 1.7520 - 1.7780 ▲

AUD/NZD: 1.0730 - 1.0850 ▲

AUD/CAD: 0.9750 - 0.9850 ▼