Aussie fails to break 0.66, is the upturn nearing the end?

AUD - Australian Dollar

The Australian dollar fell through trade on Thursday, giving up recent highs following a shift in risk sentiment. Having pushed through resistance at 0.6570, the AUD failed to extend gains beyond 0.66 and drifted lower as US-China tensions weighed on equity markets, souring demand for risk and forcing investors to adopt a cautious tone. Trump vilified China over its handling of the coronavirus, lashing out and suggesting their incompetence in managing the outbreak is the only reason the virus has spread so prolifically. In the same breath he denounced China’s new national security laws for Hong Kong, laws that could spark a fresh round of protests, suggesting the US will respond “very strongly” if the laws are enacted. In response China promised to safeguard its sovereignty and would retaliate if the US seeks to escalate tensions. The war of words has taken an alarming shift in recent weeks forcing investors to take stock as fears a renewed trade war will weigh on any short-term economic rebound. The AUD slipped back below 0.6450, touching 0.6447 before creeping marginally higher into this morning’s open.

The AUD has enjoyed a series of higher highs and higher lows this week bolstered by the increased optimism and opening of the broader global economy. Having failed to break above 0.66 US cents, topside gains will continue to be hard won, as risk sentiment continues to dominate direction and the H2 outlook softens. Watch resistance on moves approaching 0.66 with support well formed at 0.6430 and 0.6380 for now. With sentiment vulnerable to rapid corrections and the outlook into 2021 souring, the AUD will likely drift lower in the medium term holding above 0.60 but shifting back toward 0.62 by the end of June.

Key Movers

The US dollar advanced through trade on Thursday as escalating US China trade tensions prompted investors to adopt a more cautious tone as risk sentiment faltered. Despite another alarming uptick in unemployment claim filings, the USD found support as the impact of the global lockdown weighed on investors.

The Euro drifted back toward 1.0950 as optimism surrounding the Franco-German recovery fund proposal faded. Having jumped nearly 2% following the announcement earlier this week the combined unit struggled to maintain its momentum as fears US- China tensions will derail a short-term economic recovery. French, German and EU area services and manufacturing reports despite surpassing expectations, remain well below the level of expansion prompting investors to take stock and assess the broader impacts of the lockdown.

Attentions now turn to ECB policy meeting accounts for direction through trade on Friday. Investors will be keenly attuned to see if the ECB has amended its policy outlook following the German high court ruling earlier this month.

Expected Ranges

AUD/USD: 0.6430 - 0.6600 ▼

AUD/EUR: 0.5950 - 0.6050 ▼

GBP/AUD: 1.8380 - 1.8930 ▲

AUD/NZD: 1.0680 - 1.0780 ▼

AUD/CAD: 09080 - 0.9230 ▼