AUD upturn stalls as markets pare gains ahead of two key risk events
Wednesday 29 July, 2020
Daily Currency UpdateAUD - Australian DollarWhile the broader risk narrative remains intact markets adopted a more cautious tone through trade on Tuesday, preventing the AUD from extending significantly beyond 0.7150. Having touched intraday highs at 0.7175 the AUD remained range bound through much of the day bouncing between 0.7120 and 0.7165 as investors checked recent moves ahead of the upcoming Fed monetary policy meeting and an injection of fiscal stimulus. Attentions remain squarely affixed to COVID-19 headlines, with 398 new cases recorded yesterday, of which 384 were in Victoria and 14 in NSW. Victoria continues to struggle in containing its most recent outbreak with the daily number of infections stubbornly refusing to fall despite lockdown measures. With NSW the only other state recording new community transmitted cases the broader outlook still remains positive, especially when compared with other major counterparts as nearly 230,000 new cases were reported globally. As long as Victoria’s outbreak is contained we expect minimal impact on the value of the AUD through the short term. While the enforced lockdown have forced a correction in GDP estimates we are still well-placed to bounce out of the Pandemic. With support forming at 0.70 the door is open for a possible run toward 0.73 and 0.74 into the end of the year, while the upcoming Fed policy meeting and congressional stimulus plan pose short term risks.
Key MoversThe US dollar bounced of two year lows through trade on Tuesday as investors looked to consolidate the recent sell off and check positions ahead of the Fed’s upcoming monetary policy meeting and an anticipated announcement surrounding Fiscal stimulus plans. While the dollar is down over 3.5% through July the dollar index jumped back toward 94 overnight as markets adopted a more cautious tone and risk demand tapered. Attentions are fixed on the upcoming Fed policy meeting. While we do not expect the FOMC will employ any new policy measures there could be a change to forward guidance, with average inflation targets possibly lifted to counter rising prices and make up for a decade of undershooting. An increase to the inflation target will likely weigh further on real yield returns as interest rates will remain lower for longer, dampening demand for the USD. Fiscal stimulus plans also pose a risk to short term trends with republicans and democrats debating the size and breadth of new COVID-19 support packages. The Democrats have proposed a 3 trillion dollar platform while republicans are looking to scale back spending and push a 1 trillion dollar support program. With negotiations at loggerheads there is a real fear an agreement won’t be reach before the end of the week when the current unemployment benefits program ends. An eleventh hour deal could provide short term relief for the world’s base currency as investors continue to favour aggressive and proactive government intervention.The Euro has slipped off highs approaching 1.18 on the back of the USD uptick and currently buys 1.1720, while the Pound was one of the days top performers, advancing through 1.29 as technical buying as broader USD weakness continues to drive direction.
- AUD/USD: 0.7080 - 0.7220 ▼
- AUD/EUR: 0.6070 - 0.6150 ▲
- GBP/AUD: 1.7880 - 1.8220 ▲
- AUD/NZD: 1.0650 - 1.0790 ▲
- AUD/CAD: 0.9480 - 0.9620 ▲