AUD tests 0.7250 amid ongoing USD under performance

AUD - Australian Dollar

The AUD continued to test new highs through trade on Wednesday, pushing back through 0.72 amid hopes a COVID-19 vaccine will be available sooner than first estimated. Having struggled to break above 0.7180 through the domestic session the AUD found support overnight, surging to intraday highs at 0.7251 before profit taking overwhelmed the upturn and the currency corrected lower into this morning’s open. Risk demand was boosted by reports Novavax stage one trials had induced a positive antibody response, while new treatment methods in the US have seen a reduction in mortality rates by up to 50%. Hopes for a cure and a strong round of corporate earnings results, coupled with expectations US lawmakers will reach an agreement on Fiscal Stimulus by the end of the week helped fuel the risk on mood and underpinned the AUD upturn.

Attentions remain affixed to swings in risk sentiment with US fiscal policy the biggest item on the agenda through the latter half of this week. The AUD remains impervious to increasing domestic border restrictions and the continued uptick in new cases in Victoria. Markets have priced in the downturn that will inevitably result from Melbourne and Victoria second lock down and are instead looking for a robust rebound in growth through 2021.

Having struggled to sustain moves above 0.7230 we are seeking a sustained break above this handle as a marker for further upside.

Key Movers

The USD was the days big loser, tumbling against a basket of major counterparts amid a sustained risk on mood and expectations of US under performance when valued against other major economies. The dollar index fell back below 93 and stopped short of a break below 92.50, nearing last week’s two year low. Fears US lawmakers will be unable to reach a deal for COVID-19 relief by the end of the week are mounting as partisan differences delay talks. Democrats and Republicans are at loggerheads when it comes to agreeing the size, scale and direction of stimulus support and have earmarked Friday as a deadline for reaching a deal. If a compromise cannot be found talks will likely be abandoned for now, posing a real risk of deepening economic pressure across the US.

The Euro and GBP both advanced through trade on Wednesday, largely on the back of USD weakness. The single currency moved back above 1.1850 to test a break above 1.19 while GBP jumped through 1.31 to touch intraday highs at 1.3160. Attentions remain affixed to US lawmakers and ongoing fiscal stimulus updates as the primary driver of short-term direction.

Expected Ranges

AUD/USD: 0.7130 - 0.7250 ▲

AUD/EUR: 0.6010 - 0.6120 ▼

GBP/AUD: 1.7980- 1.8320 ▼

AUD/NZD: 1.0720 - 1.0880 ▲

AUD/CAD: 0.9480 - 0.9620 ▲