Daily Currency Update

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AUD steadies as risk sentiment boosted

AUD - Australian Dollar

The Australian dollar edged higher through trade on Tuesday as investors chased a rebound in risk sentiment and uptick in commodity prices. Having tested a break below supports at 0.7680/60, the AUD pushed back through 0.77 US cents as equities and rates drove gains across risk assets. The improvement across equities began in the domestic session with the ASX and Hang Seng extending recent gains, before a correction across Europe, triggered by falling bond yields in Italy, capped AUD upside at 0.7725. As short term Covid-19 concerns continue to plague the broader risk narrative, the AUD remains range bound between 0.7640 and 0.78, with broader ranges extending between 0.75 and 0.7850.

Attentions today turn to the US inauguration. Further signs of insurrection and political instability may weigh on the risk recovery.

Key Movers

Momentum behind the USD faltered through trade on Tuesday amid a recovery in risk assets and uptick across major currency counterparts. The dollar index retreated two tenths of a percent as investors chased equities, rates and commodities higher, recouping some of last week’s losses as risk sentiment regained some of the years early energy. Further downward pressure came following testimony from incoming treasury secretary Janet Yellen. Yellen stressed the Biden administration would not stand in the way of market-based dollar weakness, weighing on expectations fiscal stimulus may be employed to underpin the dollar. As the dollar dipped the euro bounced off 6-week lows, pushing back through 1.21 to mark intraday highs at 1.2140, while the Great British pound pushed back through 1.36 to touch 1.3635. The Japanese yen underperformed amid the risk on back drop, retreating 0.2% ahead of today’s BoJ Monetary Policy Statement and economic outlook report.

Our attentions today turn to the US inauguration. Further signs of political instability may weigh on the risk recovery. With commentary from the Bank of Canada, Bank of England, Bank of Japan and European Central Bank all due before tomorrow’s open, monetary policy will remain in sharp focus. While we expect little change from the current policy platforms with signs growth will not rebound through H1 and a worsening short term COVID-19 outlook, we are keenly attuned to any signal suggesting further loosening in financial conditions is forthcoming.

Expected Ranges

AUD/USD: 0.7640 - 0.7780 ▲

AUD/EUR: 0.6290 - 0.6380 ▼

GBP/AUD: 1.7580 - 1.7820 ▲

AUD/NZD: 1.0780 - 1.0850 ▲

AUD/CAD: 0.9750 - 0.9850 ▲