AUD uptick falters as risk appetite sours

AUD - Australian Dollar

The Australian dollar retreated through trade on Thursday, testing a break below 0.77 US cents amid a broadly cautious risk backdrop. Equity markets fell steeply after President Joe Biden put forth a proposal to significantly increase capital gains tax on wealthy individuals. While the policy was first proffered as part of Biden's campaign package, it seems to have come as a shock to markets prompting a sharp sell off across the S&P 500 and Nasdaq. As investors rushed to divest of risk assets; the AUD slipped to intraday lows at 0.7694 before flattening out through the last few hours of Thursday’s session.

The AUD remains vulnerable to fluctuations in the underlying risk narrative. There remains a lack of conviction among investors prompting near-term risk trends to flip back and forth on changing headline news and data events. While we still believe support for the AUD is intact, we anticipate the currency will continue to fluctuate between 0.75 and 0.7830 through much of Q2 and until a catalyst to drive a meaningful shift in narrative emerges.

Key Movers

The USD, JPY and CHF outperformed through trade on Thursday, buoyed by a souring appetite for risk and broader equity sell off. The USD DXY index advanced 0.3% after the dollar enjoyed gains against all major counterparts.

The euro slid back toward 1.20 giving up gains approaching 1.2070 after the ECB maintained its current program of monetary policy and offered no guidance on changes to its current pace of bond purchases. Markets expect the ECB will pare back the pace of QE come the start of H2 having front-loaded purchases in March. ECB president Lagarde pushed back against this narrative suggesting it was simply premature speculation.

Expected Ranges

AUD/USD: 0.7650 - 0.7820 ▼

AUD/EUR: 0.6380 - 0.6450 ▼

GBP/AUD: 1.7780 - 1.8120 ▼

AUD/NZD: 1.0730 - 1.0830 ▲

AUD/CAD: 0.9580 - 0.9720 ▼