AUD Falters on move toward 0.79, but fair value now nearer 0.80 cents

AUD - Australian Dollar

The Australian dollar marked a fresh two month high through trade on Monday, extending Friday’s upswing to test 0.7890. Renewed demand for risk and sustained strength across key commodities, namely iron ore and copper, have emboldened investors to extend beyond the recent resistance handle and suggests fair value for the AUD sits nearer 0.80 US cents. That said, the AUD failed to hold onto gains through the overnight session, shifting back below 0.7840 amid mounting inflation fears. Price pressures will continue to plague sustained AUD upside through the near term as investors grapple with hopes for the recovery and the implications of unchecked inflation. The implied break-even inflation rate on 10-year treasuries rose to fresh 8 year highs Monday, escalating fears nominal rates will continue to track higher, sparking another risk off event. Our attentions turn now to Wednesday’s US CPI print as a key marker of price movements. A strong read will likely prompt a greater chorus call, pushing the Fed to move sooner on monetary policy normalisation.

Key Movers

The US dollar underperformed through Monday, giving up gains across the board before mounting inflation fears and rising treasury yields prompted a correction across the board with the exception of the GBP. Sterling rallied through 1.41 and 1.4150 as investors move pass another key risk event, the Scottish elections. The Scottish National Party fell must one seat short of securing an outright majority, making it much harder the pro-independents to mount another referendum for independence. While a coalition with the Green party would afford the National Party the vote share needed the political and legal hurdles that need to be overcome mean any threat of secession is now some way off. Having broken above resistance at 1.40 we are now optimistic the positive outlook for the UK and its advanced immunisation schedule will drive strong gains for the GBP through the short-medium term.

Expected Ranges

AUD/USD: 0.7750 - 0.7890 ▼

AUD/EUR: 0.6380 - 0.6490 ▲

GBP/NZD: 1.7850 - 1.8180 ▲

AUD/NZD: 1.0730 - 1.0820 ▲

AUD/CAD: 0.9430 - 0.9560 ▼