Aussie drifts lower as risk appetite falters

AUD - Australian Dollar

The Australian dollar drifted lower through trade on Thursday, having failed to extend the weeks early uptick and push through 0.70 US cents. The AUD traded sideways for much of the domestic session, maintaining a 25 point range and bouncing between 0.6973 and 0.6996, before shifting back toward 0.6950 as risk appetite faltered. Markets shifted focus toward safe haven assets, following a ruling by the US supreme court that will allow New York prosecutors access to President Trump’s financial records. Equities and risk correlated currencies were forced lower in the minutes following the verdict as the possibility for further political instability added to the environment of uncertainty.

Risk continues to drive direction and while the record levels of fiscal and monetary policy support have helped foster a positive risk backdrop, the uptick in COVID-19 cases and added geopolitical uncertainty are weighing on upward risk-on moves. While we expect the record centralised support packages will continue to support the global economy and the AUD, an extension beyond 0.70 requires a renewed risk driven push. Having surged through April and May, broader optimism has stalled and ranges across currency markets have narrowed considerably. We anticipate the AUD will remain range bound through the short-term, bouncing between support and resistance handles as the ebb and flow of risk demands follows the shifting COVID-19 led narrative.

Key Movers

The US dollar advanced through trade on Thursday, bouncing off 4 week lows amid uncertainty across equity markets and a broader shift in risk demand. The S&P 500 drifted lower as risk appetite faltered following a surge in Coronavirus cases and a Supreme Court ruling that will allow prosecutors access to President Trump’s financial records. While the Supreme Court ruling adds further political uncertainty, the surge in new coronavirus infections is more immediately concerning. 60,000 new cases were reported on Wednesday with over 900 fatalities recorded, the biggest daily death rate since early June. With COVID-19 spreading across the US, hopes of a full scale re-opening are rapidly fading as States and Governors rush to re-impose social distancing restrictions in a bid to contain the spread and ease the burden on the healthcare system. The dollar index rallied three tenths of a percent and opens this morning back above 96.50 at 96.75.

The euro retreated through Thursday, giving up one month highs amid the broader risk off move. Having touched 1.1370 the combined currency retreated, moving back below 1.13 before finding support at 1.1280.

Attentions remain affixed to the broader risk narrative and with little of note on the macroeconomic docket we expect the ebb and flow of risk demand will continue to drive direction.

Expected Ranges

AUD/USD: 0.6800 - 0.7000 ▼

AUD/EUR: 0.6120 - 0.6180 ▲

GBP/AUD: 1.7980 - 1.8220 ▲

AUD/NZD: 1.0550 - 1.0680 ▼

AUD/CAD: 0.9410 - 0.9480 ▲