Global headwinds continue to weigh on AUD as demand for risk falters
Daily Currency Update
The Australian dollar drifted downward through trade on Monday amid weakness across commodity markets and growing uncertainty surrounding the impacts of the Delta variant. Markets adopted a cautious tone to start the week driving a downturn across bond markets and precious metals while oil prices gave up 4% as COVID-19 continues to wreak havoc across developing countries and those with low vaccination rates. As the delta variant tears through Asia, investors have been forced to adjust the timeline of recovery for the region; of particular concern is the spread of the more infectious strain across China. Officials have introduced new travel restrictions in a bid to contain the spread prompting markets to downgrade Chinese growth expectations. Should the Chinese economic engine falter we can expect the AUD will test lows seen in July and potentially eye a break back toward 0.70 US cents.Despite the uncertainty losses through Monday were minor and the AUD appears well bid on moves approaching 0.7320 and 0.73 US cents. With little data on hand to drive direction through the domestic session our focus remains affixed to the global reflation and risk narrative.
Key Movers
The US dollar is broadly higher as the Bloomberg dollar index advanced 0.2% through trade on Monday, buoyed by a heightened demand for haven currencies and decline in appetite for risk assets. Concerns surrounding the rapid global increase in new Covid-19 infections as the Delta variant rips through countries and regions with low vaccination rates continues to weigh on investors. Previous hopes the global economy may begin a return to normal by the end of 2021 are faltering as the highly infectious strain forces governments to wind back eased restrictions and impose new social distancing orders in a bid to reduce the burden on an already overrun health care system. While the demand for the USD has shifted off the highs enjoyed through July we anticipate the worlds base currency will continue to enjoy support as global economic headwinds continue to drive direction through the near term.The Euro slipped below 1.1750 to mark a fresh 3 month low while Sterling fell below 1.3850 touching 1.3846.
With little of note on today’s macroeconomic tickets our attentions turn to Wednesday US CPI inflation report. With leading indicators suggesting no relief in rising input costs and supply side constraints we expect another elevated print. Transitory inflation pressures appear set to linger through the medium term only adding to calls for the Fed to normalise monetary policy in an attempt to stabilise prices.
Expected Ranges
- AUD/USD: 0.7290 - 0.7420 ▼
- AUD/EUR: 0.6210 - 0.6280 ▼
- GBP/AUD: 1.8780 - 1.8980 ▲
- AUD/NZD: 1.0430 - 1.0530 ▼
- AUD/CAD: 0.9180 - 0.9260 ▼