Rate cuts and risk-off tone sees AUD downturn continue

AUD - Australian Dollar

The Australian dollar retreated Thursday, continuing the weeks downward trend in what was a typical risk off session. Equities and stocks trended lower as investors looked to haven assets following tighter social distancing restrictions across Europe and a downturn in US domestic data sets. Having opened at 0.7170, the AUD tracked lower throughout the domestic session as the weight of recent comments from RBA governor Phillip Lowe weighed on the currency. Lowe announced the countries Central Bank was reviewing the possibility of further monetary policy easing. In a Q&A session Lowe suggested an interest rate cut to 0.1% was now appropriate given the worst of the pandemic shock was over, allowing the impact of rate adjustments to filter through to the real economy. Lowe’s comments all but guarantee a rate cut next month, an adjustment we expect will be accompanied by upgraded in Quantitative Easing measure. The AUD fell through 0.7150 and continued to drift lower as a risk off mood prompted a break back below 0.71. Fresh COVID-19 restrictions implemented across Europe dampened any lingering expectation of a European led economic rebound and forced investors to look toward haven assets. The AUD, a proxy for growth and positive risk sentiment, was the subject of further selling, slipping to intraday lows at 0.7060 before finding support.

Attentions remain squarely affixed to the current risk narrative and developing COVID-19 headlines. While edging marginally higher into the open, the AUD still remains at the lower end of recent ranges and may test supports if we see negative biases finally overwhelm positive sentiment.

Key Movers

The USD, JPY and CHF all trended higher through Thursday, buoyed by the change in risk demand. The dollar found support as rising COVID infections, failed Fiscal stimulus negotiations and a downturn in domestic data sets, forced investors away from equities toward haven assets. Partisan politics has forced a correction in expectation for government COVID relief, with a new support package now unlikely before the new year. Americans have been struggling with the economic shock driven by the pandemic without significant fiscal aid, weighing on consumer demand and sentiment, creating a deeper recession from which the country must climb out.

The euro and GBP are both lower trading below 1.17 and 1.28. Brexit trade talks continue to yield little progress while increasing COVID restrictions dampen any hope for a rebound in economic activity. With the EU leaders summit beginning today, we will have a clearer picture whether Brexit talks will continue through the coming weeks, suggesting compromises have been made or abandoned and a hard Brexit becomes a reality. Watch for volatility into the close as markets adjust expectations as headlines filter through.

Expected Ranges

AUD/USD: 0.7020 - 0.7230 ▼

AUD/EUR: 0.5980 - 0.6110 ▼

GBP/AUD: 1.7720 - 1.8530 ▲

AUD/NZD: 1.0680 - 1.0820 ▼

AUD/CAD: 0.9280 - 0.9420 ▼