Dovish RBA weighs on AUD

AUD - Australian Dollar

The Australian dollar downtrend continued through trade on Tuesday, testing key supports at 0.7020 before finding some upward momentum through the overnight session. The RBA released the minutes of its October meeting and the sentiment very much echoed comments from Governor Lowe last week. The Board feels further policy easing will gain traction now the initial shock of the pandemic has subsided, and the economy is entering a new stage of recovery. The minutes were supported by commentary from Assistant Governor Kent wherein, he suggested the Bank was looking at long-dated bonds as a possible stimulus option. All in all, it points to a likely rate cut and the introduction of new quantitative easing measures in November. Having touched intraday lows at 0.7022 the AUD rebounded in the latter half of the overnight session. A rebound in equities and a weaker USD helped the AUD reverse losses and push back toward highs at 0.7070 before edging lower into this morning’s open. With little of note on today’s calendar we expect the AUD will struggle to mount any significant upward push. The recent string of dovish RBA commentary has taken much of the wind out of the Australian Dollar while fluctuations in risk sentiment afford little opportunity for a sustained risk led run. We anticipate the AUD will continue to trade within a narrow range through the rest of the month.

Key Movers

The US dollar weakened through trade on Tuesday, marking a new one-month low against when measured against key major counterparts. The dollar index fell back below 93 touching 92.991. Equities and risk assets found support on reports house Speaker Nancy Pelosi still held out hope for a fiscal Stimulus agreement within the month, while mounting expectations for a Biden victory have emboldened hopes for extensive stimulus programs throughout 2021. While markets are confident in a Biden win and a blue wave stimulus push the rapid rise in COVID-19 infections across Europe and the US should keep a lid on investors taking larger speculative positions in the lead up. We expect the US dollar will maintain a narrow trading band through the next 2 weeks leading into November 3rd.

The Great British Pound maintained its resilience to negative headlined bouncing between 1.2910 and 1.30 despite comments from top UK Brexit negotiator David Frost that suggested a Brexit deal was not guaranteed. Frost said there was little point in resuming talks with the EU unless there was a fundamental change in the approach from Brussels. With the likelihood of a hard Brexit increasing by the day we expect Sterling will remain under pressure through the weeks and months ahead. With investors nervous about taking big bets ahead of major risk events we could see increased volatility through November and December.

Expected Ranges

AUD/USD: 0.7020 - 0.7130 ▼

AUD/EUR: 0.5910 - 0.6020 ▼

GBP/AUD: 1.8120 - 1.8480 ▲

AUD/NZD: 1.0650 - 1.0750 ▼

AUD/CAD: 0.9180 - 0.9320 ▼