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Australian dollar range bound as volatility flattens out

AUD - Australian Dollar

The Australian dollar drifted between well-defined ranges through trade on Wednesday, bouncing between 0.7720 and 0.7755. Moves within currency markets were largely muted as a lack of headline data points and limited news flows offered little to shift current market biases. US inflation data edged lower, down 0.2% in January, easing concerns inflation will gather pace as the economic recovery builds. While the softer than anticipated figures forced bond yields lower, the impact on the USD was largely muted, providing little scope for the AUD to extend beyond resistance at 0.7740/50. Having edged toward the lower end of recent ranges on open the AUD currently buys 0.7720 US cents. Our attentions turn now to commentary from Fed Chair Jerome Powell. We expect Powell will simply affirm the recent narrative but any insight into the Fed’s expectations for inflation and its impact on planned policy could provide an impetus for a shift in direction. We are watching for a break above 0.7750 to signal a further extension back toward 0.78 with a dip below 0.7720 and 0.7680 signalling a return to near term bearish bias.

Key Movers

The Great British pound outperformed its peers on Wednesday, extending beyond 1.3850 and marking fresh two-year highs at 1.3865. With little to no data on hand to drive direction, markets continue to look to the GBP as a key investment target. Whilst currently undervalued there is an expectation the GBP will continue to test resistance handles as its rapid vaccine roll out creates the opportunity for a rapid recovery.

The Swedish kroner tested a break below 8.30 in the lead up to the Riksbank policy meeting. Touching highs at 8.28 the SEK quickly shifted back toward the morning’s open and 8.32/8.3250 as Bank Chair Governor Ingves adopted a similar tone to the RBA suggesting policymakers are in no hurry to roll back monetary policy supports, adding he expects to see inflation overshoot normal target bands for a period before it considers tightening financial conditions.

With little of note on today’s docket, our attentions turn to Fed Chair Jerome Powell. With little new data on hand since his last market comment we expect little deviation from the current narrative.

Expected Ranges

AUD/USD: 0.7630 - 0.7780 ▼

AUD/EUR: 0.6320 - 0.6410 ▼

GBP/AUD: 1.7820 - 1.8020 ▲

AUD/NZD: 1.0650 - 1.0780 ▲

AUD/CAD: 0.9720 - 0.9850 ▼