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AUD edges higher amid a hint the reflation narrative is again gathering momentum

Tuesday 28 September, 2021

Daily Currency Update

The Australian dollar enjoyed modest upside through much of trade on Monday, bouncing off lows at 0.7250 yet was unable to break back above 0.73 US cents. A broadly hawkish lilt proffered by a host of major central banks over the past two weeks has fostered a renewed uptick in the reflation narrative. A surge across equities and commodity prices helped propel the AUD higher, with a break back above 0.73 firmly insight. Having touched intraday highs at 0.7295 a sustained break above resistance at 0.73 could prompt a run back toward highs seen above 0.74 at the start of September. With little of note on today’s docket our attentions remain with the re-emerging reflation narrative. The AUD remains ever vulnerable to a correction in risk demand, and the Evergrande saga lingers as an ever-present risk off threat. To date government entities have taken control of some of the group’s subsidiaries in a bid to protect smaller investors and homeowners yet we are still lacking any real clarity as to whether they will get involved at a higher level and rescue the embattled property giant.

Key Movers

The CAD and GBP both enjoyed modest gains through trade on Tuesday outperforming most major counterparts. The CAD advance 0.2% on the day emboldened by an uptick in Bloomberg’s commodity index, lead by a 2% jump in oil prices, pushing brent crude back above $80 USD a barrel (a mark not seen for 3 years). Sterling extended its uptick through 1.37, buoyed by last weeks BoE commentary and firming expectations for a rate hike before the end of the year. Governor Bailey doubled down on last weeks narrative, affirming his preference for tightening rates over adjusting asset purchases. That said investors remain cautious in extending gains. The British recovery is incredibly fragile. With the delta variant continuing its prolific spread among the unvaccinated and a looming energy crisis threatening to derail any consumer led recovery gains beyond 1.40 will likely be hard won in the immediate short term. The Euro and JPY offered little to excite investors and the USD index is printing marginally lower. Our attentions today turn to the ECB’s central banking forum. Further insight into a recent hawkish tilt could fuel an extension in the emerging reflation narrative.

Expected Ranges

  • AUD/USD: 0.7230 - 0.7370 ▲
  • AUD/EUR: 0.6150 - 0.6270 ▲
  • GBP/AUD: 1.8680 - 1.8990 ▲
  • AUD/NZD: 1.0320 - 1.0420 ▲
  • AUD/CAD: 0.9150 - 0.9230 ▲