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Bond market uncertainty forces AUD to give up push above 0.80 US cents

AUD - Australian Dollar

The Australian dollar advanced again through trade on Thursday as recent momentum propelled it through 0.80 US cents for the first time in 3 years. Reflation expectations continue to facilitate gains across commodity currencies, while broader US dollar weakness has amplified the weeks upturn. Having struggled to break resistance at 0.78 US cents ahead of last Friday’s session, the AUD has enjoyed sustained support through the week marking new highs at 0.8009, before edging lower into this morning’s open. The question is, can we sustain the upturn? While the RBA is likely to pine for a lower AUD, the current market narrative will make it very difficult for policy makers to arrest and reverse the current trend. The Federal reserve is committed to a sustained period of uber accommodative monetary policy, depressing USD value while markets continue to chase reflation expectations (a plus for commodities), and an improved global economic outlook (a positive for risk assets and proxy currencies).

That said a disorderly bond market and uncertainty across equities has prompted a correction through the latter half of the overnight session. Collapsing back below 0.80 and 0.79, the AUD now buys 0.7875 US cents and will need a sustained break and close above the 0.80 handle if we are to extend toward the 2018 highs at 0.8136.

Attentions today remain with the reflation narrative and bond price action for direction into the weekly close. Further uncertainty across equities and bond markets could promote further weakness and a break toward support at 0.7820.

Key Movers

The Dollar Index touched a 7-week low through the front end of yesterday’s session, depressed by sustained gains across commodity prices and currencies, particularly the AUD and CAD. However, volatility across bond markets and a surge in US treasury yields, allowed the world’s base currency to rebound through the back end of the day, recouping early losses and enjoying gains against nearly all major counterparts. The euro pushed through 1.22 touching highs at 1.2240, before being forced back below 1.2170 while the GBP fell short of a break above 1.42, topping out at 1.4175, before testing a break back below 1.40.

Our attentions today remain with price action across bond markets and treasury yields as key risk drivers into the weekly close. Heightened fears the recent appreciation has been over done could prompt a correction across asset classes including currencies.

Expected Ranges

AUD/USD: 0.7780 - 0.8010 ▼

AUD/EUR: 0.6380 - 0.6560 ▼

GBP/AUD: 1.7680 - 1.7920 ▲

AUD/NZD: 1.0620 - 1.0750 ▼

AUD/CAD: 0.9880 - 0.9990 ▼