Daily Currency Update

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AUD creeps higher as volatility across bond markets eases

AUD - Australian Dollar

The Australian dollar opens back above 0.78 this morning having tracked higher overnight amid broad based US dollar weakness. Markets largely ignored yesterday’s RBA policy announcement, prompting little change in price action as policymakers simply reiterated their commitments to the current policy platform. Following Monday’s increased bond purchases we had anticipated the RBA may announce an increase to the overall QE program, yet the board opted to maintain the current $100bn commitment suggesting a possible reduction in weekly purchases should conditions across bond markets remain calm. The AUD drifted toward intraday lows at 0.7740 through the latter half of the domestic session as a risk off mood permeated Asian markets. Comments from China’s top banking regulator regarding current risks to the country’s recovery soured demand for risk assets and prompted a short-term uptick in haven assets, with the USD and JPY both edging higher. Investors then looked to unwind gains overnight pushing the AUD back through 0.78 to touch intraday highs at 0.7840 and opens this morning only marginally lower at 0.7829 US cents.

Our attentions today remain with price action across bond markets, while Q4 GDP data will provide some insight into the state of economic recovery. Should volatility continue to ease the opportunity for a rebound in risk demand opens the door for the AUD to continue its extension back toward 0.79 and 0.80, albeit we expect a more measured assent this time round, with investors wary that an aggressive and overheated uptick could prompt another round of panicked selling.

Key Movers

The US dollar and Japanese yen drifted lower overnight as the markets shrugged Asian led risk aversion. Both haven assets enjoyed gains through the Australasian session as a risk off mood permeated markets following comments from top Chinese banking regulators. Having touched intraday highs through the early part of the European session the dollar index retreated through the rest of the trading day and is now two tenths of a percent below yesterday’s open. Calmness across bond markets and easing volatility seems to have opened the door for investors to gradually buy back into the risk rally. The euro pushed back toward 1.21 having briefly dipped below 1.20 while the Great British pound fell marginally short of a break back above 1.40.

Attentions today remain with the current risk narrative and price action across rates and bond markets with ADP employment data and ISM services indexes providing some guidance on US economic health.

Expected Ranges

AUD/USD: 0.7710 - 0.7890 ▲

AUD/EUR: 0.6380 - 0.6520 ▲

GBP/AUD: 1.7690 - 1.8020 ▼

AUD/NZD: 1.0680 - 1.0780 ▲

AUD/CAD: 0.9780 - 0.9920 ▲