Daily Currency Update

AUD - Australian Dollar

The Australian dollar advanced through trade on Wednesday extending Tuesday’s uptick beyond 0.77 toward 0.7750. Momentum behind the week's early risk on shift gathered pace as expectations of increased US fiscal stimulus accompanied the inauguration of the 46th President of the United States. While the Biden administration has promised a sweeping revocation of Trump policies on day one; policies that ordinarily may not be considered market friendly, investors seem unperturbed, instead buoyed by the promise of additional government spending designed to guide the world's largest economy through the pandemic and promote a H2 recovery. Having touched intraday highs at 0.7760 the AUD again struggled to extend toward and through 0.78. While commodity currencies lead gains, a wrinkle potentially putting medium term AUD upside at risk appears to be emerging. Reports of an increased number of community transmitted COVID-19 cases in China could weigh on ongoing AUD upside. With selected regions imposing strict lockdown measures, an uncontained spread within China could derail the economic recovery driving the global rebound.

Our attentions today turn to domestic labour market data with unemployment expected to trend toward 6.7%. While strong domestic labour performance can underpin fundamentals behind AUD strength and heighten calls for a review on QE policy, our focus remains on performance through March when Job Keeper payments are wound back and free market economics again takes over.

Key Movers

The Canadian dollar led gains across majors through trade on Wednesday following the Bank of Canada policy meeting. While the BoC opted to maintain its current policy setting, commentary from Governor Macklem promising to support the economy through the pandemic and uphold the current cash rate until the ”economic slack is absorbed” helped bolster demand for the loonie.

The US dollar retreated in the face of a risk on backdrop giving up gains across the board, while the euro underperformed ahead of today’s ECB policy meeting. We expect the ECB will preserve the status quo, however any signal from ECB President Lagarde the bank is concerned by lackluster growth outlook could spark expectations for extended QE moving through H1. With German, French, Euro area and US PMI data due Friday we are keenly attuned to any divergence in economic performance.

Expected Ranges