AUD vulnerable as global COVID-19 outlook worsens
Friday 30 October, 2020
Daily Currency UpdateAUD - Australian DollarThe Australian dollar edged near the psychological 0.70 handle through trade on Thursday, drifting lower after having failed to respond to improving market sentiment. Having given up 0.7050, the AUD marked fresh intraday lows at 0.7005 despite a rebound in equities and other risk assets. With little of note on the domestic docket, the AUD suffered a sell off by association, as markets looked to shed growth and commodity correlated assets amid a sharp correction in the euro. Extended lockdown restrictions across the continent and the promise of additional monetary policy easing from the ECB cast a pal over currency markets, as the outlook for macroeconomic performance looks grim. Investors have been reluctant to extend AUD upside beyond 0.7150 this week, as expectations for an RBA policy adjustment and the effects of COVID-19 weigh on risk demand in the lead up to next weeks US election. While seemingly well supported above 0.70 for now, investors have sidelined bets ahead of next weeks risk events. A dovish surprise from the RBA and a Bond program north of 150-200billion could be the catalyst to push the AUD through this handle, while a contested and drawn out election will weigh on risk demand and certainly prompt further AUD selling through the short-term. Our attentions remain affixed to the evolving COVID narrative and next weeks key markers for direction into the end of the year.
Key MoversThe US dollar advanced through trade on Thursday, buoyed by a sharp downward correction in the euro amid fears the 2nd shutdown will curtail the economic recovery, as the ECB chases further policy easing in an attempt to stave off a worsening recession. The US dollar index, driven by euro weakness touched a four-week high, up half a percent to 93.94. The common currency fell through 1.1750 and 1.17, to touch intraday lows at 1.1650 as investors looked to divest of the single unit ahead of further ECB rate cuts. Comments from policy makers and price action across rates markets suggest further easing and additional rate cuts are imminent, reducing the attractiveness of the euro. As the continent grapples with a ruthless 2nd wave of coronavirus infections, hopes Europe would recover at a faster pace than the US have all but faded. With investors' attentions turning to next weeks election we could see some definitive price action through the back half of next week as investors jump back in having navigated the critical risk event.
- AUD/USD: 0.6980 - 0.7150 ▼
- AUD/EUR: 0.5980 - 0.6080 ▲
- GBP/AUD: 1.8220 - 1.8480 ▼
- AUD/NZD: 1.0580 - 1.0650 ▼
- AUD/CAD: 0.9320 - 0.9420 ▼