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Australian Dollar edges closer to 0.80 as reflation trade continues to drive direction

AUD - Australian Dollar

Global reflation expectations continued to steer direction through trade on Wednesday, forcing treasury yields higher and dragging the AUD through resistance at 0.7930. The AUD moved through 0.7950 overnight, marking fresh three-year highs at 0.7962 as it eyes a move toward and beyond 0.80 US cents. Commentary from Fed Chair Jerome Powell suggests the FOMC will maintain its current policy setting through the foreseeable future with expectations for inflation to remain below the 2% average for at least 3 years. While Powell’s comments simply affirmed the Fed’s recent rhetoric, they serve as timely reminder accommodative monetary policy will be in place for some time, fuelling demand for equities and driving long-run recovery expectations. Commodity prices also helped drive the AUD toward new highs as copper rallied to its highest level in 10 years while oil prices rose another 2% with reports that emerging prices could again touch $100 as economies recover from the pandemic recession and demand returns.

Attentions today remain with the broader reflation narrative and a move toward 0.80.

Key Movers

The US dollar opens lower this morning as the global reflation trade continues to drive equities and commodity currency higher and Fed Chair Jerome Powell douses expectations for inflation. In an address to lawmakers, Powell affirmed the Fed’s recent rhetoric suggesting monetary stimulus will be in place for some time as inflation is not expected to hit the 2% average target for at least 3 years. The comments drove asset prices higher pushing the S&P 500 toward a 1% gain while stoking gains across US treasury yields and deflating demand for the USD.

The euro struggled to break resistance at 1.2170 and again appears to be range-bound between 1.21 and 1.22 while Sterling continued its forward advance, touching 1.42 before edging lower through the latter stages of the daily session to rest marginally below 1.4150. Attentions remain with the reflation narrative.

Expected Ranges

AUD/USD: 0.7820 - 0.8010 ▲

AUD/EUR: 0.6480 - 0.6590 ▲

GBP/AUD: 1.7620 - 1.7930 ▼

AUD/NZD: 1.0650 - 1.0820 ▼

AUD/CAD: 0.9940 - 0.9980 ▼