AUD edges toward 0.78 amidst weaker US dollar backdrop

AUD - Australian Dollar

The Australian dollar opens higher this morning, extending toward 0.78 US cents overnight thanks to a broadly weaker US dollar. Having tracked sideways through much of the morning, the AUD fell sharply around midday following reports China’s National Development and Reform Commission had suspended high-level economic dialogue with Australia indefinitely. While the latest breakdown doesn’t appear to correlate with an immediate impact to trade, it reminds investors of the stretched and strained status of the Australia/China relationship. Having touched lows at 0.7705, the AUD steadily tracked higher marking fresh intraday and weekly highs at 0.7787.

With little of note on the day’s domestic ticket, attentions turn to US non-farm payrolls for direction into the weekend. We expect the AUD will continue to whipsaw between support and resistance, maintaining its narrow handle through the short-term.

Key Movers

The US dollar tracked lower through trade on Thursday, weaker against most major counterparts as investors appear to be consolidating April’s downturn. The DXY index fell 0.4% through the overnight session, slipping below 91 to touch lows at 90.89. US dollar softness helped the euro climb off lows near 1.20 and push back through 1.2050, while the Great British pound’s strong start to the month faltered following the Bank of England policy meeting. Policy makers opted to maintain the current interest rate setting, while reducing the size and scope of the weekly bond buying program. The decision was largely expected, as the Bank aims to roll back bond purchases with a view to ending QE in December. The BoE raised forecast for GDP performance and lowered their expectations for unemployment, as the outlook and recovery across the British economy appears to be ahead of schedule. Despite the optimistic outlook, Governor Bailey quickly doused the embers of expectation, highlighting that even the Bank’s most optimistic forecasts still show the UK economy will lose two years of GDP growth because of the pandemic. Having slipped below 1.39, sterling touched lows at 1.3866 before creeping marginally higher into this morning’s open.

Attentions turn now to the Non-farm payroll data as the headline item leading into the weekly close.

Expected Ranges

AUD/USD: 0.7680 - 0.7830 ▲

AUD/EUR: 0.6390 - 0.6480 ▼

GBP/AUD: 1.7680 - 1.8020 ▼

AUD/NZD: 1.0720 - 1.0820 ▲

AUD/CAD: 0.9420 - 0.9510 ▼