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AUD buoyed by broad US dollar sell-off

Wednesday 19 May, 2021

Daily Currency Update

AUD - Australian DollarThe Australian dollar advanced through trade on Tuesday, buoyed by broad based USD softness and sustained strength across key commodities prices. Having struggled to extend beyond resistance at 0.7780/90 the AUD found support through the domestic session breaking through 0.78 to touch intraday highs at 0.7810 before settling into a narrow range through the overnight session. With little headline news flow driving upside, the AUD simply benefited from broader US dollar weakness amid higher oil prices and a modest shift in demand for risk. While the AUD faces short-term inflation led headwinds, we maintain our bullish expectations. The global risk backdrop remains positive, while domestic macroeconomic performance continues to improve and commodity prices test new highs. A sustained break above resistance at 0.7830 and 0.79 could signal another push toward 0.80 before year-end. Attentions today turn to domestic wage price data. While we expect little in the way of wage growth, a surprise to the upside could help the AUD consolidate a shift above 0.78.

Key Movers

The US dollar and Japanese yen underperformed through trade on Tuesday while the EUR and GBP enjoyed renewed demand. The US dollar fell against all major counterparts while the yen struggled following a sharp decline in Q1 GDP data. Economic activity contracted nearly 1.5% in the three months to March 31 while leading indicators suggest a similar decline through Q2. Japan has failed to control COVID-19 and is in the grip of another wave of infections that have prompted tightening restrictions and an evaporation of corporate investment. With the threat of a double dip recession looming, we anticipate outside a risk-off environment, the JPY will struggle to mount any upside momentum.Despite a contraction in GDP, the euro extended through 1.22 touching new highs at 1.2230 while the pound sterling broke 1.42 to touch 1.4220. With the UK continuing its push to vaccinate the population by July and Europe’s own immunisation program gathering momentum, the scope for easing restriction and economic recovery should support both currencies through the medium to long term.

Expected Ranges

  • AUD/USD: 0.7730 - 0.7830 ▼
  • AUD/EUR: 0.6350 - 0.6420 ▼
  • GBP/AUD: 1.7980 - 1.8290 ▲
  • AUD/NZD: 1.0690 - 1.0780 ▼
  • AUD/CAD: 0.9350 - 0.9430 ▲