AUD/USD holds onto gains; Is the US dollar bull run coming to an end?

AUD - Australian Dollar

The Australian dollar maintained its upward momentum through trade on Monday, pushing back above 0.71 amid broad based US dollar weakness. Having opened below 0.7090 the AUD climbed steadily throughout the day marching back toward 0.7150 and intraday highs at 0.7151. Despite a sustained demand for risk assets the AUD fell short of last weeks 15 month high at 0.7183, meeting and bouncing off resistance as concerns over growing COVID19 infections in Victoria weighed down the upturn. Victoria reported 532 new coronavirus infections on Monday, the countries worst daily increase since the Pandemic began. Lockdown and social distancing measures in force through the last two weeks appear to have done little to force a downturn in daily infections, raising concerns level 4 restrictions will need to be enforced in the coming days. With fears mounting the outbreak could spread into NSW there is a risk the broader national recovery may be derailed.

Attentions today remain with COVID 19 headlines and broader risk demand. Despite our domestic outbreak we maintain our bullish outlook for H2. Broad based US weakness should help support extended AUD upside in the months ahead with a consolidated break above 0.7150 opening the door for an extension toward and beyond 0.72. There are of course risks to this outlook. Uncertainty across markets remains high and conviction thin, a broader shift in risk demand and widespread global shutdown amid a 2nd wave of infections across Europe could force a flight to safety, weighing on the AUD rebound.

Key Movers

The US dollar collapsed to a two-year low against the Euro on Monday amid losses against most major counterparts as the spread of COVID 19 continues unchecked. Florida passed New York as the State with the second highest number of Coronavirus infections, while California continues to battle an unwelcome surge in new cases, now the worst hit of all 50 States. There is mounting concern that unemployment benefits will dry up come the end of the week. Republicans are tipped to put forth a relief bill on Monday/Tuesday at which point Democrats will have the opportunity to critique the proposal and push their own agenda. With partisan politics in full swing leading into the election there is real scope to suggest both parties will not agree a compromise in time, escalating calls for a short-term stopgap measure to prop up those devastated by record job losses. Heightened uncertainty within the US has forced us to push back our timeline for recovery with the US likely to lag major counterparts in bouncing out of the pandemic and economic crisis. The Fed is expected to affirm its commitment to long run low interest rates on Wednesday with uber loose monetary policy likely to be in play for years to come. As real US interest rates remain under pressure and US economic performance falters there is ample capacity for extended USD downside through H2.

Capitalising on USD weakness the Euro upturn continued Monday, outstripping major counterparts and pushing through 1.17 and 1.1750 to touch two-year highs at 1.1775. The single currency has been the primary benefactor in the shift away from the worlds base currency as the EU proactive and aggressive fiscal support program has bolstered hopes for a swift economic recovery and a unified Europe.

Expected Ranges

AUD/USD: 0.7020 - 0.7220 ▲

AUD/EUR: 0.6010 - 0.6130 ▼

GBP/AUD: 1.7780 - 1.8220 ▲

AUD/NZD: 1.0630 - 1.0750 ▼

AUD/CAD: 0.9480 - 0.9620 ▲