AUD - Australian Dollar

The Australian dollar opens lower this morning having drifted off intraday highs at 0.7190 overnight amid heightened concerns US lawmakers will not be able to reach an agreement on COVID-19 relief measures while tensions with China remain frosty. Negotiations between democrats and republicans stalled last week and reports suggest little progress has been made through the week thus far. While most investors expect Congress will reach some form of compromise in the coming days/week there is mounting concern the stalemate could fester. The risk of protracted negotiations is significant as it delays critical unemployment benefits and income support measures currently propping up consumption. A long-term freeze on support will essentially bring consumption to grinding halt. The uncertainty meant demand for risk has soured Tuesday forcing the AUD back below 0.7150 to intraday lows at 0.7135.

Despite the risk off move the AUD remains supported by broadly positive sentiment yet struggles to advance beyond resistance at 0.7230/0.7240. While there is scope for added AUD upside a period of consolidation while US fiscal stimulus talks continue will likely see ranges narrow over coming days and the USD supported by safe haven demands.

Attentions today turn to US CPI data and the RBNZ monetary policy meeting. After the emergence of 4 new community transmitted cases in NZ have forced the country into partial lockdown a proactive increase to its monthly bond buying program could push the AUD through resistance at 1.9 against the NZD.

Key Movers

The US dollar crept higher Tuesday amid a souring demand for risk. Discussions surrounding the next phase of COVID-19 relief remain at loggerheads with democrats and Republicans at an impasse, unable to progress negotiations, weighed down by partisan agenda’s. With critical income support platforms now at risk for an extended period there is a sense of nervousness creeping into markets. Failure to restore unemployment benefits will leave a huge whole in consumption and could force the US even deeper into recession. The Dollar index pushed back through 93, hitting a one-week-high. Safe haven demand should continue to prop up the dollar as long as negotiations continue.

The Euro slipped back below 1.1750, drifting off intraday highs at 1.18 amid a broader USD uptick. The single currency enjoyed early momentum following a ZEW survey of economic sentiment showed a significant improvement in German optimism. With Europe’s engine room gaining in confidence there is hope the EU will enjoy a swift recovery as we move through the latter half of 2020 and into 2021, ensuring the Euro remains well bid through the medium term.

The Great British Pound retraced early gains and again failed to hold onto an extension beyond 1.31 as a US dollar uptick and dour labour market report dampened demand for the resurgent pound. Data showed job losses reached their highest level in more than 10 years throughout the 2nd quarter, a stark reminder just how much damage was done in the early days of the Pandemic. While medium term gains against the USD remain in play we expect domestic economic woes and Brexit concerns will weigh on GBP value when compared with other major counterparts.

Expected Ranges

AUD/USD: 0.7080 - 0.7240 ▼

AUD/EUR: 0.6020 - 0.6130 ▼

GBP/AUD: 1.7980 - 1.8420 ▲

AUD/NZD: 1.0780 - 1.0920 ▲

AUD/CAD: 0.9450 - 0.9620 ▼

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