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AUD upturn falters as PBoC intervenes to correct CNY appreciation

AUD - Australian Dollar

The Australian dollar failed to maintain the momentum enjoyed into the close last week, edging lower through trade on Monday despite a largely positive risk narrative and an uptick in equities and risk assets. The Australian dollar failed to follow stocks higher as the ASX, S&P500 and Nasdaq all enjoyed strong gains, instead intervention from the Peoples Bank of China to correct the recent Yuan appreciation spilled over into AUD demand forcing the Aussie dollar back toward 0.72 US cents. The PBoC removed minimum cash requirement regulations on Forwards at the weekend while marking the daily reference rate 1% lower than Friday’s fix. Often seen as a proxy to the Yuan the AUD was forced lower giving up 0.7235 to touch intraday lows at 0.7204.

With little of note on the domestic docket today, attentions turn to Thursday’s employment report. Unemployment is expected to push beyond 7% despite the efforts of Jobkeeper. A poor print will likely add mounting pressure on a November RBA rate cut. With many now pricing in a 15 basis point reduction in official interest rate, headline domestic data points are key in firming expectations through the coming weeks. We anticipate the AUD will remain largely range bound bouncing between 0.7020 and .7230 with broader topside resistance at 0.74 intact through the rest of the year.

Key Movers

The Great British Pound continued its push beyond 1.30, buoyed by the implementations of COVID 19 restrictions that have been perceived to be lighter than first anticipated. AS the UK battels to control a 2nd wave of infections Boris Johnson announced new social distancing restrictions where-in the fight against coronavirus will now be regionalised. A targeted approach is seen as preferable toa full scale national lockdown amid hopes the engine driving the economy can keep running. Sterling touched intraday highs at 1.3080 as attentions now turn to UK-EU trade talks. European leaders will be attending EU summit talks with clear goal of reaching at least some form of trade agreement. The self-imposed deadline for a Brexit trade package has arrived and failure to put aside key differences this week could prompt a rapid and sharp GBP correction.

The US dollar traded nearer the three week low when measured against a basket of currencies, unable to recoup Friday’s correction as hopes a Stimulus package designed to ease the burden of the COVID19 pandemic were bolstered. Friday’s depreciation marked the biggest daily decline in almost 6 weeks as demand for risk improved amid expectations the lawmakers will pass at least basic COVID19 relief measures while the Presidential election is unlikely to be close enough for Trump and the republicans to contest. Concerns the White House would enter a long and protracted protest through the supreme courts system should the election result in a narrow Biden win have eased as polls show Biden has widened his advantage on the incumbent. That said Trump is still polling well in key battleground states and the race is far from over.

Attentions today remain with the risk narrative and further development surrounding US fiscal stimulus.

Expected Ranges

AUD/USD: 0.7020 - 0.7250 ▼

AUD/EUR: 0.6030 - 06130 ▼

GBP/AUD: 1.7920 - 1.8280 ▲

AUD/NZD: 1.0780 - 1.0890 ▼

AUD/CAD: 0.9410 - 0.9490 ▼