AUD/USD tests 0.78 ahead of key US fiscal stimulus outline

AUD - Australian Dollar

The Australian dollar shrugged off Wednesday’s downturn rebounding back through 0.7750 to test 0.78 US cents. With little of note on hand through the domestic session, the AUD tracked sideways bouncing between 0.7730 and 0.7760, as investors sidelined bets ahead of a Biden update on planned Fiscal Stimulus, commentary from Fed Chair Jerome Powell and a crucial US jobless claims report. The AUD rallied as markets looked to reports of part one of Bidens’ economic plan could stretch to $2 trillion. With weekly jobless claims nearing 1 million, their highest level since March, Democrat leaders continue to push the President-elect to increase stimulus spending and see the economy through the worst of the pandemic. As increased spending adds to expectations for inflation, markets looked to Jerome Powell for any insight into how the Fed plans to handle increasing price pressures. Powell reiterated that now is not the time to be talking about exiting the current monetary policy plan, affirming the Fed’s commitment to accommodative market settings and a willingness to work through transitory inflationary pressures. The promise of lower interest rates helped the AUD test another break above 0.78 touching 0.7805, before edging lower into this morning open.

Our attentions this morning turn to President-elect Biden as he sets out his economic plan at 11:15am AEDST. A surprise to the upside could help fuel another uptick in US treasury yields and drive dollar strength into the weekend.

Key Movers

The US dollar continued its see saw battle against major counterparts, giving up Wednesday’s gains through trade on Thursday, as markets react to an uptick in domestic jobless claims and expectations for fiscal stimulus. 965,000 Americans filled for state benefits last week, the biggest weekly jobless claim since March and a stark reminder COVID-19’s impacts stretches well beyond the healthcare system. Sterling broke through resistance at 1.3670 to test a break above 1.37, while the euro recouped early losses and jumped back above 1.2150. Despite the correction, the USD did find some support in widening Treasury yields and inflation expectations. Hopes for an increase in Fiscal support have heightened concerns inflationary pressures will run through the Fed 2% target in the latter half of the year, weighing on monetary policy and prompting some analysts to price in a tightening in policy conditions. As markets grapple with short term headwinds and medium term expectations for an economic rebound, our attentions turn to President-elect Joe Biden and part one of his economic plan for a greater insight into how quickly the American economy might bounce out of the political and pandemic driven recession.

Expected Ranges

AUD/USD: 0.7690 - 0.7830 ▲

AUD/EUR: 0.6290 - 0.6430 ▲

GBP/AUD: 1.7480 - 1.7720 ▼

AUD/NZD: 1.0720 - 1.0810 ▲

AUD/CAD: 0.9790 - 0.9880 ▲