Risk on drive helps AUD surge back toward 0.73

AUD - Australian Dollar

The Australian dollar advanced through trade on Thursday, bouncing off lows to test a break above 0.73 US cents. Having tracked sideways through much of the domestic session, the AUD rallied overnight as investors adopted a risk on mantra. Easing concerns surrounding the Evergrande saga helped bolster demand for risk assets across financial markets, allowing equities to jolt upward and commodity currencies to rally. Reports regulators has instructed the property giant to avoid near term default on its US bonds, helped fuel expectation authorities will step in at the 11th hour if the company cannot extricate itself. While no official announcement was afforded, markets chased risk assets higher and the AUD touched intraday highs at 0.7310.

With little available on today’s agenda, our attentions remain with the underlying risk narrative. Markets remain vulnerable to fluctuations in news flow surrounding Evergrande, while commentary from the Fed president and vice president is unlikely to offer any new insight into changing monetary policy. Barring a surprise risk event, we expect the AUD will continue to trade between 0.7220 and 0.7370 through the near term.

Key Movers

A risk on drive drove gains across emerging and commodity led currencies through trade on Thursday, forcing the USD and JPY lower. The Dollar index suffered a chunky fall, giving up 0.4%, while the yen was the days worst performer and only unit to give up ground to the USD tumbling 0.4%, while suffering a sharp correction across a number of key crosses. The NZD jumped back to 78 up from 76.75 against the yen, while the AUD surged back above 80.50 against the yen, having opened below 79.30.

The Great British pound enjoyed a strong uptick, bouncing back through 1.37 to test 1.3750. The Bank of England, while leaving policy unchanged, appeared to suggest an interest rate hike before the end of the year could be possible. A statement noted that a tightening of monetary policy should be implemented by an increase in bank rates, regardless of any ongoing government bond asset purchase programme. Recent transitory inflation pressures had strengthened the case for a move on interest rates. Markets jumped on the statement pricing in a 15-basis point increase by February.

With little of note on today’s agenda our attention remains with the underlying risk narrative. A sustained improvement in risk sentiment could see the USD unwind recent gains.

Expected Ranges

AUD/USD: 0.7220 - 0.7350 ▲

AUD/EUR: 0.6150 - 0.6250 ▲

GBP/AUD: 1.8580 - 1.8990 ▼

AUD/NZD: 1.0250 - 1.0360 ▼

AUD/CAD: 0.9180 - 0.9270 ▼