AUD/USD hits fresh weekly high ahead of US Central Bank commentary

AUD - Australian Dollar

The Australian dollar climbed through 72 US cents Wednesday amid broad based US dollar weakness. Having offered little to excite investors throughout the domestic session the AUD found upward momentum overnight extending through 0.72 to touch fresh weekly highs at 0.7240. Market sentiment remains positive, fueling demand for risk assets, with equities extending recent gains to touch record highs and dragging the AUD upward. While risk demand continues to drive direction and ultra-loose central bank monetary policy ensures money remains cheap, fundamental data sets are showing signs of recovery. Improvement in key macroeconomic indicators has helped fuel optimism the world economy will enjoy a swift rebound once the pandemic is under control, underpinning positive sentiment and helping prop up the AUD rally. Having stalled on moves approaching 0.7250 our attentions turn to US Federal Reserve President Jerome Powell. Powell is set to address attendees of the Jackson Hole Central Bank Symposium tonight and investors will be keenly attuned to any signal the FOMC is preparing to adjust its monetary policy setting. It is widely tipped the Fed will amend its inflation management strategy and any signal as to timing will likely weigh further on the world’s base currency, driving the AUD through resistance.

Key Movers

The US dollar gave up ground to most major counterparts through trade on Wednesday as investors manage positions leading into key commentary from Fed Chair Jerome Powell. Many analysts expect the Fed will need to adjust its monetary policy platform again if it is to continue supporting the US economic recovery and ease the stresses of the recession. The most likely Fed response will be an amendment to its inflation management setting, moving away from a fixed target to an average. Such an adjustment will allow inflation to move beyond the current acceptable level and afford the FOMC more time before intervening and raising interest rates, ensuring rates remain low for longer.

The Euro traded sideways bouncing between 1.1780 and 1.1850 while the GBP continued to test an extended break above 1.32, touching highs at 1.3220.

Looking ahead we anticipate ongoing dollar weakness will continue, extending gains for the Euro as we move into the end of the year. Having met resistance on moves approaching 1.1950/1.20, the single currency has drifted lower through the last week and a half as markets consolidate positions and take stock following July’s advance. With attentions squarely affixed to risk flows we expect further gains through Q4. The major risk to this outlook is the increasing concern a 2nd wave of infections will shutdown the continent. Daily new infections are increasing in Italy, France, Spain and Germany raising questions as to whether borders can remain open. With numbers trending in the right direction in the US a reversal in pandemic fortunes could prompt a shift in direction and momentum.

Expected Ranges

AUD/USD: 0.7130 - 0.7320 ▲

AUD/EUR: 0.6010 - 0.6150 ▲

GBP/AUD: 1.7980 - 1.8420 ▼

AUD/NZD: 1.0920 - 1.1050 ▼

AUD/CAD: 0.9420 - 0.9580 ▲