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Aussie shifts lower as risk appetite falters

AUD - Australian Dollar

The Australian dollar fell through trade on Thursday slipping back below 0.6850 and 0.6830 to touch intraday and weeklong lows at 0.6810. In the absence of headline data events the AUD fell victim to a broader shift in demand for risk as markets looked to haven assets bolstering JPY and USD holdings. Commentary from US Vice President Mike Pence sapped some of the recent optimism driving risk on trade through the last week as markets zeroed in on Pence’s criticism of China. The Vice President accused China for becoming increasingly hostile over the past 12 months suggesting they have become “more aggressive and destabilising” in the theft of US intellectual property while “slashing rights and liberties” of the citizens of Hong Kong. While Pence did evoke conciliatory language as well, directly pointing out the US was not seeking confrontation with Beijing the comments highlight the vast gulf that still needs to be addressed before hostilities between the worlds two economic superpowers are finally put to bed.

With little of note on the domestic docket today we expect the AUD will remain vulnerable to ongoing shifts in risk on sentiment as attentions turn to next Tuesdays quarterly inflation data, Wednesday US Fed funds rate announcement and a host of key US domestic data sets for more immediate short term direction.

Key Movers

The USD and JPY both benefited from shifts in risk appetite on Tuesday with the USD jumping two tenths of a percent against key dollar counterparts, while the Euro slipped below 1.11. The combined unit gave up recent gains following softer than expected PMI data and largely muted commentary from the ECB. Outgoing President Mario Draghi opted to maintain the current policy setting issuing a sustained message of downside risk and guidance. Attentions now turn to incoming President and Ex IMF chief Christine Largarde and guidance on future QE policy as a key driver of future Euro direction.

The Great British pound closed the day as one of the worst performers as Johnson announced he would put to parliamentary vote a call for a General Election to be held on December 12. The announcement adds another layer to recent Brexit uncertainty and opens the door to an increased chance of a no-deal Brexit should Johnson manage to increase his parliamentary majority. Sterling fell through 1.29 and 1.28 to touch 1.2785 and remains vulnerable to Brexit headlines.

Expected Ranges

AUD/USD: 0.6730 - 0.6880 ▼

AUD/EUR: 0.6080 - 0.6180 ▼

GBP/AUD: 1.8530 - 1.8930 ▼

AUD/NZD: 1.0650 - 1.0750 ▲

AUD/CAD: 0.8890 - 0.8990 ▼