AUD tests break below 0.77 as risk demand falters

AUD - Australian Dollar

The Australian dollar tracked lower through trade on Tuesday as a risk-off mood permeated financial markets. Investors largely ignored the RBA statement and rate announcement as policymakers offered nothing that was not already priced in. The board opted to leave rates on hold and deferred any decision on bond targets and QE purchases until the July meeting. Following last week's disappointing inflation print there is little expectation the RBA will move on rates ahead of schedule, meaning monetary policy will be extremely accommodative through 2024. Having marked intraday highs above 0.7750 the AUD tracked lower overnight as the shift to safe haven assets gathered momentum. Extending to touch session lows at 0.7680 the AUD has edged marginally higher into this morning’s open and is now back above 0.77 US cents.

The AUD remains vulnerable to ongoing fluctuations in risk demand. While underlying commodity prices continue to support the currency there is scope for a period of near-term downside. Heightened pandemic concerns, growing inflation concerns and rising US treasury yields open the door for a break below support at 0.7680, while resistance at 0.78 remains intact.

Key Movers

Safe Haven currencies outperformed through Tuesday, buoyed by a risk-off mood permeating financial markets. Substantial falls in US equities and a correction in treasury yields fostered a 0.3% uptick in the dollar index. Commentary from Treasury Secretary Janet Yellen unnerved investors as the former Fed Chair suggested if Biden’s fiscal stimulus plans were enacted they will likely result in a need to push interest rates higher in a bid to stop the economy from overheating. The statement contradicts her previous dovish stance. While the USD, CHF and JPY lead gains, sterling held steadfast slipping only marginally below 1.39. The pound was the worst performing major currency through April and while May is typically a month in which the currency faces seasonal headwinds it has so far enjoyed renewed demand as the vaccine roll out remains on track and the economy trudges toward a full-scale re-opening in July.

Attentions this week remain with the Bank of England policy statement and US non-farm payroll data as the big ticket items headlining the macroeconomic agenda.

Expected Ranges

AUD/USD: 0.7630 - 0.7760 ▼

AUD/EUR: 0.6380 - 0.6450 ▼

GBP/AUD: 1.7880 - 1.8120 ▲

AUD/NZD: 1.0750 - 1.0820 ▲

AUD/CAD: 0.9430 - 0.9550 ▼