AUD/USD: Australian dollar recovery falters
|AUD - Australian Dollar
The Australian dollar fell through trade on Tuesday, drifting toward 0.7510 despite an improved demand for risk and rising commodity prices. US and European equities rallied toward record highs, while treasury yields remained flat and the Bloomberg commodity index marked its fifth consecutive daily appreciation, well and truly recovering the mid-June, post FOMC sell off. Against this backdrop we would ordinarily expect the AUD to have outperformed most major counterparts, instead the currency struggled to mount any upward momentum. With little catalyst for the AUD sell off, we can only point to increasing uncertainty surrounding the emergence of the COVID-19 Delta variant, particularly across Europe and emerging markets. There is a growing concern this virulent strain of the virus will devastate countries that remain largely unvaccinated, further derailing the global economic recovery and compounding current transitory inflation concerns.
Despite the recent depreciation, we still see the AUD as fundamentally undervalued and anticipate It will continue to outperform moving into years end. That said, near term headwinds should ensure upside is limited through the coming days and weeks, with the Delta strain and evolving pandemic the headline risk that could force a change in outlook.
Key Movers
Despite the risk-on backdrop, haven currencies outperformed through trade on Tuesday, as the Japanese yen closed the day as the top performer when valued against major counterparts. Despite giving up ground to the JPY, the USD enjoyed broad based gains, thanks to a dip in the EUR and the GBP. The single currency fell below 1.19 while GBP struggled to hold onto moves approaching 1.38 as the correlation between currency markets and other financial assets widens. Investors appear concerned the emergence and spread of the Delta variant could derail the global economic recovery, amplifying demand for haven assets and driving commodity and growth linked currencies lower. Our attentions remain with the evolving pandemic narrative, while US non-farm payroll numbers Friday headline the macroeconomic docket.
Expected Ranges
AUD/USD: 0.7480 - 0.7630 ▼
AUD/EUR: 0.6290 - 0.6370 ▼
GBP/AUD: 1.8270 -1.8520 ▲
AUD/NZD: 1.0710 - 1.0780 ▲
AUD/CAD: 0.9280 - 0.9360 ▼
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