AUD/USD enjoys modest gains as risk sentiment finds momentum

AUD - Australian Dollar

The Australian dollar crept higher through trade on Thursday amid an ongoing increase in the demand for risk. Equities dragged risk assets higher and while moves across currency markets were somewhat modest, commodity and traditional risk proxies benefited on the day. The AUD found support early following a decline in the unemployment rate. While the pace of job creation slowed, the unemployment rate fell 0.2%, a strong indication the domestic economy is recovering quickly from COVID-19 enforced lockdowns. It is certainly encouraging to see the labour market rebound however with Job Keeper schedule to end in March, our focus remains on sustained improvements for a clearer picture of domestic economic health. Having touched 0.7782 overnight the AUD edges lower through this morning’s open as risk sentiment moderates and investors take profit near weekly highs. The AUD has seemingly bucked last week's downtrend, marking a series of higher highs and higher lows, however it remains entrenched within recent ranges. We continue to expect resistance on moves approaching 0.78 and 0.7820 with support intact on moves below 0.7650. Our attentions today turn to a host of service and manufacturing data sets across Europe and the US as key markers of global economic health.

Key Movers

The dollar index was weaker this Thursday, soured by an upsurge in demand for risk. While losses have been modest, it marks the fourth consecutive daily depreciation as markets again drift away from concerns surrounding short term COVID-19 headwinds and instead look to the medium and longer term recovery as a source of optimism. The S&P 500 marked new record highs overnight while the NASDAQ enjoyed strong gains on the back of outperformance across the tech sector. Jobless claims slowed, although remain shockingly high with 900,000 Americans filing for state unemployment benefits last week.

The euro edged higher pushing off lows approaching 1.20 to extend beyond 1.2150. THE ECB left its policy setting unchanged while ECB president Christine Lagarde expressed hope the “roll-out of vaccines allows for greater confidence in a resolution to this health crisis”. While Lagarde did point to a higher euro as a marker of inflation concern she offered little to surprise markets allowing the single currency to capitalise on broader USD weakness.

Our attentions now turn to a slew of Services and Manufacturing PMI’s across the US and Europe as key markers of growth. With concerns euro-area growth will remain stagnant post recovery a significant divergence in January PMI’s could add downward pressure on the shared unit and afford the USD some much-needed support.

Expected Ranges

AUD/USD: 0.7640 - 0.7820 ▲

AUD/EUR: 0.6330 - 0.6420 ▼

GBP/AUD: 1.7480 - 1.7820 ▲

AUD/NZD: 1.0750 - 1.0820 ▼

AUD/CAD: 0.9750 - 0.9820 ▲