Spillover in risk sentiment helps AUD hold on above 0.65

AUD - Australian Dollar

The Australian dollar held onto gains won through Monday testing a break above resistance at 0.6570 as optimism surrounding a possible coronavirus vaccine and the ongoing opening up of the global economy fuelled investors appetite for risk. A spillover from Monday’s surge in equities and risk assets ensured the distinct risk on mood would continue through trade on Tuesday helping the AUD drive through 0.6550 and touch intraday highs at 0.6582.

The AUD still remains vulnerable to broader shifts in risk demand with investors hesitant to extend beyond the current resistance handle. With uncertainty clouding forward guidance the AUD remains vulnerable to ongoing volatility especially as diplomatic tensions with China increase. A Bloomberg report showed China was considering targeting more Australian exports including wine, seafood, fruit and dairy, adding to the 80% tariff imposed on barley and restrictions placed on meat from some of Australia’s largest abattoirs. While the market reaction to the report was largely muted and a full-scale trade war is unlikely the targeting of Australian exports will likely weigh on topside moves should tensions escalate through the medium term.

Attentions today remain affixed to risk flows ahead of commentary from RBA governor Lowe Thursday. Expect the AUD to maintain support and resistance handles between 0.6380 and 0.6570.

Key Movers

Haven assets were the days big losers with the USD, JPY and CHF all correcting lower when compared with other major counterparts. Monday’s risk on shift spilled into Tuesday as optimism surrounding a possible coronavirus vaccine and ever-increasing economic activity amid easing restrictions continued to fuel demand emerging market currencies and those majors tied to risk.

The Sterling bounce continued pushing back above 1.2250 to touch intraday highs at 1.2300. An uncertain coronavirus outlook and a looming hard Brexit will ensure the Great British Pound remains under pressure through the short and medium term with topside moves above 1.23 and approaching 1.25 hard won. Instead, fair value for now sit between 1.20 and 1.23.

The Euro advance continued through Tuesday marking a 1% gain to start the week. Optimism surrounding the Franco-German led EU rescue package, helped bolster demand for the single currency as hopes the fund will prop up those economies worst hit by the virus without creating long-term debt obligations. The proposal is set to be delivered to the EU commission on May 27 and is the first step toward joint debt obligations. The Euro surged to 1.0975 before shifting lower into this morning’s open.

The Norwegian Kroner was the day’s top performer, buoyed by strong gains in oil prices. Oil has enjoyed a sustained recovery after May futures fell below zero just two weeks ago. With economic activity increasing and restrictions easing demand is picking up, easing oversupply issues and driving prices higher.
 

Expected Ranges

AUD/USD: 0.6380 - 0.6580 ▲

AUD/EUR: 0.5930 - 0.6030 ▲

GBP/AUD: 1.8580 - 1.8980 ▼

AUD/NZD: 1.0680 - 1.0830 ▼

AUD/CAD: 0.9020 - 0.9150 ▲