Risk on narrative continues to drive AUD upturn
Thursday 4 June, 2020
Daily Currency UpdateThe Australian dollar upturn continued through trade on Wednesday despite Q1 GDP data indicating the Australian economy had tipped into a technical recession. Equities and growth sensitive currencies rallied for an 8th consecutive day amid sustained appetite for risk and an upswing in Chinese macroeconomic data sets, fostering further AUD gains and prompting a move to intraday highs at 0.6980. The AUD found added support in Chinese Caixin services data printed above the line of expansion and contraction for the first time since the coronavirus crisis enveloped the world’s second largest economy. Investors were encouraged by the bullish print as major economies turn to China as a marker or blueprint for economic activity amid looser social distancing restrictions. Having fallen short of a break back above the psychological 0.70 handle the AUD meet some selling pressure falling briefly below 0.69 to touch intraday lows at 0.6855 before pushing higher into the daily close and this morning’s open, where it currently buys 0.6920 US cents.
Attentions remain squarely attached to risk as the disconnect between fundamentals and direction continues. The market continues to overshoot in either direction and while we would expect a moderation in the medium term there is further scope for AUD upside in the short term as long as the risk on narrative remains in play. Australia remains well placed to bounce out of the coronavirus pandemic quickly, while China’s recovery and massive domestic fiscal stimulus measures will ensure a sustained demand for Iron ore, copper and other key Australian commodities.
Watch resistance on moves approaching 0.6980/0.70 with support in play on moves below 0.6850 and 0.68.
Key MoversThe US dollar retreated through trade on Wednesday, slipping to an 11-week low as investors continued to shed safe haven assets. Demand for risk continues to improve as markets the disconnect between fundamentals and direction continues. While macroeconomic indicators paint a dire picture, printing well below the line of contraction and expansion the trend line is beginning to point in the right direction, bolstering hopes that with ongoing easing of social distancing restrictions the global economy will rebound quicker than first anticipated.
The Euro enjoyed modest gains up six tenths of a percent to 1.1236. The shared currency has enjoyed strong gains since the EU commissions proposal for a 750 Euro recovery fund. The scheme, if agreed by all 27 member states would go beyond initial expectations and represents an incredibly important step forward for the Eurozone and EU project at a time when its very existence was being questioned. Having rallied 3% through the last 10 days the currency is well placed to take advantage of ongoing USD weakness.
The Japanese Yen was again the worst performing major unit falling another quarter percent against the Greenback as the move away from haven assets forces investors to unwind JPY positions.
Attentions today turn to the European Central Bank, wherein we expect they will announce extensions to its QE program, ramping up bond purchases as it attempts to steer the continent through the coronavirus crisis.
- AUD/USD: 0.6780 - 0.7020 ▲
- AUD/EUR: 0.6080 - 0.6240 ▼
- GBP/AUD: 1.7920 - 1.8380 ▼
- AUD/NZD: 1.0680 - 1.0860 ▼
- AUD/CAD: 0.9280 - 0.9420 ▼