Bouncing back; AUD recovers losses as sentiment turns positive
Daily Currency UpdateThe Australian dollar has clawed its way back above 0.72 US cents, bolstered by a renewed demand for risk assets. Markets begun the week on a positive note, reversing last weeks risk off agenda, chasing equities, commodities, commodity currencies and risk assets higher amid a backdrop of positive Covid news. China reported no new community transmitted Covid-19 cases yesterday, the first of this recent outbreak and key indicator stringent lockdowns still work, even against the delta variant. Hopes the Chinese economic engine will enjoy a swift rebound were bolstered further after the PBoC, China’s central bank, pledged to support the economy and recovery with appropriate money growth. Commodity prices rebounded on hopes of renewed Chinese demand, dragging the AUD off last weeks low. Having extended through 0.7150 the AUD found added support overnight after the US FDA finally approved Pfizer for general use. To this point the vaccine had only been granted emergency approval and it is hoped this final hurdle will encourage those yet to be vaccinated to accept the shot is safe and protect themselves. The delta variant has stoppered demand for risk through the last month and a half, starving the market of any positive news flow. Yesterday’s upbeat headlines finally afforded investors and markets some hope the worst may be over allowing the AUD to run back through 0.72 to touch intraday highs at 0.7220. With little of note on the domestic or broader macroeconomic ticket this week pandemic headlines and risk trends will continue to drive direction.
Key MoversThe US dollar plunged through trade on Monday as last week’s risk off trend flipped with investors giving up the risk off agenda, chasing commodities and risk assets amid a surge in positive sentiment. The CAD beat out all other majors, buoyed by a surge in oil prices while the AUD and NZD came in 2nd and 3rd as commodity currencies drove gains and the recovery off last weeks low. The Great British Pound also enjoyed support bouncing off levels below 1.3620 to mark intraday highs above 1.3730, while the Euro pushed back toward 1.1750. The dollar index fell sharply, giving up 9-month highs, while the Yen gave up ground against key crosses, namely the NZD and AUD as haven assets suffered a sharp correction.
The Delta variant has acted as a handbrake for risk demand through the last month and a half and yesterday’s positive headline afforded some hope the worst may be over. The pandemic and global forces continue to drive direction and we expect volatility will continue as sentiment fluctuates on the back of broader covid expectations. Despite yesterday’s correction we expect the USD will remain well bid through the near term as the virus continues to threaten our return to normal. Until the weight of headlines turns positive, we can expect risks will remain skewed to the downside for risk assets, commodities and commodity currencies.
- AUD/USD: 0.7110 - 0.7320 ▲
- AUD/EUR: 0.6080 - 0.6190 ▲
- GBP/AUD: 1.8880 - 1.9120 ▼
- AUD/NZD: 1.0420 - 1.0520 ▲
- AUD/CAD: 0.9070 - 0.9180 ▼