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Aussie dollar falls to a three-week low

AUD - Australian Dollar

The Australian dollar has been rising quickly over the last few weeks showing no signs of easing despite a sharp fall on Friday. The AUD/USD pair broke above 0.80 cent mark for the first time since February 2018 on Thursday, following a strong rally in base metals, iron ore and oil prices. However on Friday we saw the Aussie fall to a fresh three-week low of 0.7706, after a sharp rise in Bond Yields which set off a sell-off in global equites and knocked the Aussie off its three year high. With the current upward strength in commodity prices the rally may not be over yet.

Looking ahead this week on the data front and on Monday we will see the release of the February Commonwealth Bank Manufacturing PMI and TD Securities Inflation reports for the same month. On Tuesday we will see the Reserve Bank of Australia (RBA) interest rate decision which may spark a bullish reaction in the Australian dollar as the central bank appears to be in no rush to alter the path for monetary policy leaving interest rates unchanged at the record low of 0.10% while continuing to purchase an additional $100 billion of bonds issued by the Australian Government and states and territories when the current bond purchase program is completed in mid-April. From a technical perspective, the AUD/USD pair is currently trading at 0.7707. We continue to expect support to hold on moves approaching 0.7701 while now any upward push will likely meet resistance around 0.7871.

Key Movers

On Friday in the US we saw long-term US Treasury yields soar (1.4%) while Bonds yields fell in anticipation of higher inflation and prospects for a stimulus boosting and increased spending. The Greenback was stronger across the board on Friday, gaining 0.7%-0.8% in index terms. The market has already priced in US President Joe Biden’s $1.9 trillion stimulus package, while US Federal Reserve head Jerome Powell reiterated that quantitative easing is here to stay. On the release front on Friday US Durable Goods Orders surged 3.4% in January, higher than expected (1.1%). In the week ending February 20, the advance figure for seasonally adjusted initial jobless claims was 730,000, a decrease of 111,000 from the previous week's revised level of 841,000.

Looking ahead this week and on Monday it all starts with the release of US ISM Manufacturing PMI which is forecast to come in at 58.6, while the PMI services index will be released on Wednesday which is expected at 58.5. However, all eyes this week will be on Wednesday’s US employment-related data which will take centre stage. The report is expected to show that the private sector added 125K in the month of February, after gaining 174K in the previous month. On Friday the US will publish Nonfarm Payroll report for the month of February which the market is forecasting an increase in job creation of around 110K and an unemployment rate of 6.4%.

Expected Ranges

AUD/USD: 0.7600 - 0.7800 ▼

AUD/EUR: 0.6250 - 0.6450 ▼

GBP/AUD: 1.7900 - 1.8100 ▲

AUD/NZD: 1.0500 - 1.0700 ▼

AUD/CAD: 0.9650 - 0.9850 ▼