Aussie dollar range bound; beholden to the ebb and flow of risk aversion

AUD - Australian Dollar

The Australian dollar appeared poised to break back above 0.70 US cents through trade on Monday, following equities higher before a swift reversal in risk demand drove both the AUD and key equity indices lower. An increased appetite for risk helped push the AUD higher through out the domestic session with added support coming as the number of new COVID19 cases in Victoria fell. Testing resistance at 0.6990 the AUD’s upward momentum suggested a sustained surge in risk demand could see a break above 0.70. While the Nasdaq and ASX rallied the S&P 500 broke into positive territory for year before profit taking and a swift risk off move sent the AUD back below 0.6950.

The AUD remains range bound, entrenched within a narrowing band, shifting between 0.6930 and 0.6990. Volatility within narrowed ranges remains high as markets continue to battle expectations for a recovery and an ever-increasing uncertainty around the length and scale of the economic recovery. While there is hope the Victorian outbreak may have been controlled the number of new COVID19 cases around the world shows little signs of slowing. Florida alone reported 12 new cases through Monday while India battles to control the outbreak. With the global growth expectations waning risk demand rest solely with sustained and ongoing fiscal and monetary policy support. We expect the AUD will remain range bound through the short term battling to break outside broader ranges between 0.68 and 0.70.

Key Movers

The US dollar edged marginally lower when measured against a basket of key major counterparts. Optimism the pandemic’s resurgence in the US was reaching its peak continued through early trade on Monday as the rate of increase in new infections across key US hotspots slowed. Having drifted toward a one month low the dollar found support following reports California will re-impose strict lockdown measures, forcing the closure, of bars, restaurants, gyms, hair salons and other service providers in a bid to stem the spread of the virus in some of the hardest hit counties.

The Euro advanced through trade on Monday, up 0.4% and testing a break above 1.1350 having touched intraday highs at 1.1373. Optimism ahead of this weeks EU leaders summit helped bolster demand for the common currency as investors look to EU officials for further updates regarding the EU recovery fund. The current plan allows for 750 billion Euro’s to be distributed to the worst effected countries via a series of grants and loans. With the Netherlands, Denmark and Austria all questioning the issuance of grants and shared debt obligations investors will be keenly attuned to any amendments in the proposal and/or sings the current proposal may be derailed. Should EU leaders agree a package this week we could see an extended risk on move helping drive risk currencies higher and force haven assets lower.

Expected Ranges

AUD/USD: 0.6850 - 0.6990 ▼

AUD/EUR: 0.6080 - 0.6180 ▼

GBP/AUD: 1.7890 - 1.8250 ▼

AUD/NZD: 1.0550 - 1.0680 ▲

AUD/CAD: 0.9380 - 0.9490 ▼