AUD/USD continues to underperform on looser monetary policy expectations

AUD - Australian Dollar

The Australian dollar edged lower through trade on Monday, underperforming despite broader US dollar weakness and ongoing CNY upside. The AUD gave up intraday highs at 0.7115 to touch session lows at 0.7060, forced lower amid growing expectations the Reserve Bank will loosen monetary policy and introduce new QE measures as early as next month. Having given up highs at 0.74 the AUD has come under increasing pressure after the RBA suggested it will cut interest rates by 0.15 basis points while introducing new bond buying in the 5-10 year sector of the yield curve. With the promise of looser monetary policy weighing on the currency and the risk narrative continuing to fluctuate short term AUD upside may be hard won. We anticipate the Australian Dollar will continue to bounce between support at 0.70/0.7020 and resistance at 0.7230 moving into November 3rd. The promise of an RBA policy announcement and the US presidential election opens the door to an interesting and possibly volatile trading session.

Key Movers

The US dollar drifted lower when valued against a basket of major counterparts amid hopes a pre – election Fiscal rescue package was still possible and renewed optimism surrounding the release of a COVID19 vaccine. The Dollar fell 0.3% as softness spread across haven assets forcing the CHF and JPY lower following comments from House Speaker and lead democrat Nancy Pelosi that intimated a deal could be pushed through before the election. If a bill is to pass through the House and Senate, it will need to be agreed within the next 24-48 hours prompting a level of cautious optimism among investors hoping for one last push. While Americans are desperate for COVID support markets are broadly expecting any plan will come after the election. Expectations the Democrats will regain a majority in both the house and senate have raised hopes of an extensive stimulus bill come the new year.

The Great British Pound and Euro both advanced through Monday on hopes ongoing trade talks may salvage a post-Brexit trade agreement. While little came of the EU summit and self-imposed deadline, Britain has said “the door is still open”. If both parties are willing to make small concessions a deal may well be struck before the official separation in 10 weeks times. Sterling rallied back through 1.30 on hopes for an 11th hour deal while the Euro advanced almost half a percent pushing back toward 1.18 to open at 1.1771. While markets remain optimistic, we are seeing investors prepare and position for a hard breakup as GBP holdings are steadily being reduced.

Attentions remain squarely affixed to the broader risk narrative with fiscal stimulus headlines and Brexit updates driving sentiment. We expect volatility within a narrowing range ahead of the November 3 election.

Expected Ranges

AUD/USD: 0.7020 - 0.7150 ▼

AUD/EUR: 0.5930 - 0.6080 ▼

GBP/AUD: 1.8080 - 1.8520 ▲

AUD/NZD: 1.0630 - 1.0750 ▼

AUD/CAD: 0.9280 - 0.9370 ▼