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AUD edges higher despite fears energy crisis will derail recovery

Tuesday 5 October, 2021

Daily Currency Update

AUD - Australian Dollar

The Australian dollar found itself among the top performers through trade on Monday, advancing 0.4% amid a broadly weaker US dollar and a surging coal price. With much of the country enjoying an extended weekend the AUD tracked sideways through the domestic session bouncing between 0.7250 and 0.7270 before a late rally saw it push toward intraday highs just short of 0.73 US cents. Having tested a break below 0.72 last week the AUD has quickly recovered and appears entrenched within a familiar range struggling to extend gains, yet rebuking attempts to create fresh year to date lows. Underpinning the AUD is a surge in commodity prices, particularly natural gas and coal. Rising fears a global energy crisis will derails an already fragile pandemic recovery have driven prices higher through the last months with thermal coal now up 40% in the last 30 days alone and 200% for the year. Shortages and supply constraints ensure prices remain elevated prompting cuts to supply in key centers around the world. With further headwinds expected the AUD will likely struggle to extends significantly beyond resistance at .73/0.7330. Our attentions today turn to the RBA policy update. We anticipate a largely optimistic tone, given the success of the vaccine rollout to date and a planned reopening across the eastern seaboard in the weeks ahead. That said we expect little price action given the boards position on interest rates and commitment to maintaining the current pace of QE into February 2022.

Key Movers

The US dollar opened the week on the softer side, giving up ground against most counterparts, unable to hold onto last weeks gains. The dollar index slipped some 0.3% as commodity currencies found support in surging oil, gas, and coal prices, while the Euro and GBP retraced last weeks downturn. Despite rising concerns the surge in energy prices is driving a global energy crisis investors seemed reluctant to drive a full-scale risk off push. Contrasting forces ensured conviction in direction remains largely absent and the door open for further volatility across currency markets moving through Q4. Our attentions today turn to US ISM services data. Having maintained an elevated level through recent months we expect a modest correction as the effects of the Delta variant are felt across the economy. We will also look to commentary from FOMC member Quarles and ECB President Christine Lagarde as they hit the wires. With rising energy prices expected to drive long run inflation pressure we are keenly attuned to any central bank signal that might suggest the commitments to accommodative monetary policy is wavering.

Expected Ranges

  • AUD/USD: 0.7180 - 0.7330 ▲
  • AUD/EUR: 0.6190 - 0.6290 ▲
  • GBP/AUD: 1.8570 - 1.8720 ▲
  • AUD/NZD: 1.0390 - 1.0520 ▼
  • AUD/CAD: 0.9090 - 0.9220 ▼