AUD - Australian Dollar
The Australian dollar clawed its way back above 0.76, posting modest gains in what was otherwise a largely lacklustre session. Moves across currency markets were mostly muted mirroring small gains across risk assets and equity markets. Positive earnings results and an uptick in US services performance helped foster risk lead gains and saw the AUD test highs at 0.7625.
Our attentions now switch to tomorrow’s RBA statement on monetary policy for greater insight into Tuesday’s policy announcement. The decision to extend QE and commit to long-run lower interest rates has dampened demand for the AUD as expectations for an improved yield return wane. We will be closely focused on just how wedded the RBA is to the current policy stance and key levels of macroeconomic performance that might foster a shift in direction. With support intact at 0.7570, we expect the AUD will remain range bound and trade between 0.7550 and 0.7690.
The euro downtrend continued through trade on Wednesday moving nearer key psychological supports at 1.20, touching session lows at 1.2004. The single unit was driven lower as Italian bond yields and spreads fell sharply following ongoing political instability. Former ECB president Mario Draghi has accepted a mandate to form a workable coalition and the next Italian government. The spread to German Bunds fell 9 basis points and while inflation across the Eurozone rose markets remain pessimistic about the growth opportunities across the common market. GDP is expected to retract sharply through Q1 as national lockdowns and slow vaccine roll out flatten hopes that normal economic activity will resume in the near term. Having bounced off lows, the euro currently trades at 1.2037, however a break below 1.20 will likely open the door to a swift run lower.
Our attentions today turn to the Bank of England policy meeting and monetary policy statement. Policymakers have signalled that a move to negative interest rates would not be appropriate at this time. We are keenly attuned to any change in this narrative. We expect the UK’s faster pace of vaccination and slow improvement in COVID-19 infection rates will continue to support the currency through the short term.
0.7570 - 0.7690 ▲AUD/EUR:
0.6280 - 0.6370 ▲GBP/AUD:
1.7780 - 1.8020 ▼AUD/NZD:
1.0520 - 1.0650 ▼AUD/CAD:
0.9690 - 0.9790 ▲