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AUD range bound despite US debt ceiling deal

Daily Currency Update

The Australian dollar maintained a narrow trading range through Monday, bouncing between US$0.6520 and US$0.6550, in what was a largely uneventful and quiet start to the week. A muted response to reports an agreement was reached (in principle) to suspend the US debt ceiling ensured the AUD met resistance on moves approaching US$0.6550.

With US and UK markets closed for Memorial Day and the Summer Bank Holiday liquidity was thin and with little headline data on hand, investors appeared reluctant to make any major moves. While outperforming most majors, AUD upside has been well contained and we continue to trade within recent ranges against the euro, GBP and CAD and are stronger against the NZD.

After last week’s surprise RBNZ policy update, the NZD has suffered a sharp correction as markets scramble to adjust OCR and yield expectations. After testing a break below 1.0575 earlier in the month, the AUD is now trading back above 1.08 and should enjoy sustained support on an improved domestic economic outlook.

With little to note on today’s macro ticket, our attentions remain on the broader risk sentiment. With US and UK markets returning, we may see a delayed response to the weekend’s debt ceiling agreement.

Key Movers

Price action was muted through trade on Monday, with the US, UK, German, Swiss and French markets all closed for bank holidays and Memorial Day long weekends. Liquidity across the day remained thin with so many markets closed. As such, the response to reports a deal has been reached to extend the US debt ceiling, and the reaction across financial markets has been subdued.

The low-key response is indicative of a market anticipating an 11th hour compromise. While the bill must pass Congress before becoming law, it appears both sides have rallied the support needed. Commodity currencies were stronger on the day, while the euro continues to hold onto 1.07 and the GBP tracked between 1.2340 and 1.2370. With global yields lower, the yen outperformed, forcing the USD back toward 140, off intraday highs above 140.50.

With little to note on today’s ticket, we look to returning investors for price action and a delayed reaction to the US debt ceiling agreement, with sentiment expected to drive direction ahead of Friday’s all-important US nonfarm payroll update.

Expected Ranges

  • AUD/USD: 0.6480 - 0.6630 ▲
  • AUD/EUR: 0.6080 - 0.6130 ▲
  • GBP/AUD: 1.8720 - 1.9020 ▼
  • AUD/NZD: 1.0750 - 1.0850 ▲
  • AUD/CAD: 0.8850 - 0.8950 ▲