AUD range bound as investors delay bets until after Key risk events
Tuesday 27 October, 2020
Daily Currency UpdateThe Australian dollar tracked sideways through Monday struggling to break a 40-point range in what was a largely risk off start to the week. Investors refused to extend bets in either direction amid growing concern the COVID19 second wave will force an extended European lockdown, while US stimulus talks stalled, ensuring there will be no relief package until after next weeks election. Global equities fell with the S&P 500, Nasdaq and Eurostoxx all giving up over 2% while the USD bounced off last weeks low as risk aversion forced investors toward haven assets. Having rebounded from lows at 0.7020 last week we expect the AUD will remain largely range bound as we rocket towards next weeks key risk events. Tuesday’s RBA policy meeting and the US Presidential election are critical markers in governing direction into the end of the year. Markets have largely priced in a 15 basis point rate cut and QE programme. Analysts anticipate the RBA will begin purchasing 5-10 year bonds amid a total package valued between $150 – $200 billion. Anything short of this mark leaves markets vulnerable to disappointment and could prompt some AUD upside, while a more robust programme will prompt likely prompt a quick AUD correction and could test supports. Barring a collapse in market sentiment we expect the AUD to trade between 0.7020 and 0.7230 through the next week.
Key MoversThe US dollar bucked last weeks downtrend and advanced through trade on Monday, emboldened by a risk off shift and push toward safe haven assets. Rising Covid19 infections across the US and Europe and failed US relief talks forced investors out of equities and growth currencies and into treasuries, the USD, CHF and JPY. Record numbers of new infections in France, Russia and the US have sent a shockwave through markets amid fears reinstated restrictions will bring the economic recovery to a grinding halt. While Oxford university and Astrazeneca, front runners in the race for a vaccine, reported promising immune responses in older patients, phase 3 trials are still weeks from completion with a vaccine unlikely to be ready before December. Attentions this week turn to Key US GDP data and an ECB policy update as markets attempt to understand the impact of sustained restrictions and official attempts to guide the global economy through the Pandemic. We expect the ECB will provide some further guidance on additional stimulus measures as it attempts to see Europe through this 2nd wave and lockdown. Watch currencies to maintain a relatively narrow bank as investors delay big bets until after next weeks Election.
- AUD/USD: 0.7020 - 0.7180 ▼
- AUD/EUR: 0.5980 - 0.6050 ▲
- GBP/AUD: 1.8080 - 1.8420 ▼
- AUD/NZD: 1.0580 - 1.0710 ▼
- AUD/CAD: 0.9350 - 0.9450 ▲