AUD tests 6-month high as US dollar negatives accumulate
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Daily Currency Update
The Australian dollar advanced on Monday in what was a bullish domestic trading session, buoyed by extended US dollar softness. Having toyed with a break above US$0.65 on Friday, the AUD surged toward intraday highs just north of US$0.6530, after reports emerged the US would delay the imposition of a 50% tariff on EU exports to the US until July 9th, allowing talks to progress in good faith. The de-escalation in trade tensions helped spur demand for risk, further dampening demand for the USD and allowing the AUD scope to test fresh 6-month highs.Growing concern surrounding the state of US fiscal policy has helped add a floor beneath the AUD, but to date, upside gains have been capped. Having touched intraday highs at US$0.6536, the AUD retreated through overnight trade as the US and UK returned from public holiday long weekends. The AUD opens this morning at US$0.6490.
While our medium- and longer-term outlooks support a higher AUD, it is clear that resistance at US$0.65 is proving a tough barrier to break. Our attentions today turn to China's industrial production data and a Bank of Japan policy announcement, with US durable goods orders and consumer confidence data dominating the overnight macroeconomic ticket. Once again, trade and geopolitical tensions will drive the underlying risk premia, and we are closely monitoring trade talks between the US and the EU.
Key Movers
The USD pitched lower on Monday after President Trump walked back his threat to impose a 50% tariff on the EU this weekend, extending the deadline to July 9th after talking with EC President Ursula von der Leyen. The announcement helped drive support for European and US equities while fuelling demand for other risk assets, driving the USD lower. With the USD already on the back foot amid a growing “sell America” narrative, the euro tested a break above 1.14, while the GBP closed in on 1.36 and the yen drove the dollar below 142.50.US dollar negatives are accumulating as the market focus shifts to account for US fiscal risk. The Moody’s downgrade of US credit, President Trump's flagship fiscal legislation and a widening debt burden have amplified calls to sell the USD. Trade and fiscal uncertainty should ensure the dollar remains under pressure and opens the door for other majors to enjoy extended gains. US durable goods orders and consumer sentiment will offer key insights into the impact of tariffs on US consumers, while EU consumer confidence data and a Bank of Japan policy meeting round out the macro ticket.
Expected Ranges
- AUD/USD: 0.6450 - 0.6550 ▲
- AUD/EUR: 0.5650 - 0.5750 ▼
- GBP/AUD: 2.0800 - 2.1000 ▲
- AUD/NZD: 1.0750 - 1.0900 ▼
- AUD/CAD: 0.8880 - 0.9000 ▼