Australian Dollar jumps back through 0.72 as US weakness resumes

AUD - Australian Dollar

The Australian dollar surged back through 0.72 US cents through trade on Monday, lead higher following a jump in equities and an improvement in risk sentiment. Having struggled to break above 0.7170 through much of the domestic session the AUD rallied overnight touching intraday highs at 0.7225. A continuation in US dollar weakness was the primary driver as softer than expected regional manufacturing data and a dip in business confidence cast doubts over the strength of any US economic recovery to date.

Attentions this week turn to the Fed and the minutes from its last meeting. With the AUD failing to break resistance at 0.7230/40 any shift in the policy outlook, in particular a shift in the average inflation target, could add heightened pressure on real interest rates and provide the catalyst to push the AUD nearer 0.73. Our focus today turns to RBA minutes. Governor Lowe outlined the Banks position and decision-making process to the House of Representatives Committee on Economics on Friday, and we expect little deviation from this message. Watch resistance on moves approaching 0.724 with support in play on dips toward 0.7130.

Key Movers

The Japanese yen outperformed through trade on Monday while the US dollar resumed its downward trend and the Pound wobbled amid renewed Brexit talks. The US dollar lost ground against a basket of major counterparts as a risk on move drove the traditional safe haven index below 93 to 92.817. A continuation in US dollar selling and broader weakness allowed the JPY to mark a new one week high, breaking back below 106. Doubts over the stability of the US recovery and heightened political concerns exacerbated the dollar sell off. With Democrats and Republicans focus shifting away from Fiscal stimulus talks to their respective party conventions and the official naming of candidates there is a diminishing optimism a government COVID 19 relief package will be available before September leaving millions of Americans with crucial benefits for a least a month, worsening the divide created by the Pandemic and pushing the US even deeper into recession.

Attention remain with the FED and its meeting minutes due tomorrow. Having maintained the status quo investors will be seeking any sign the Federal Open Market Committee is preparing to amend its policy platform, particularly an adjustment to average inflation targets. A dovish review will likely add further pressure on the already embattled dollar.

Sterling remained range round through much of Monday as investors brace for more volatility ahead of new trade talks between the UK and EU. Officials are racing to find a compromise before the end of 2020 when the UK will be set adrift from the common market, relinquishing all preferential trade agreements. Unless a deal can be struck Sterling faces significant headwinds. The UK was one of the worst hit European country by the Pandemic and has suffered the biggest economic contraction fo any G7 nation. Failure to secure favourable ongoing trade conditions could be catalyst to break the back of the recent GBP run and force a correction back toward 1.20.

Expected Ranges

AUD/USD: 0.7120 - 0.7240 ▲

AUD/EUR: 0.6010 - 0.6130 ▲

GBP/AUD: 1.7980 - 1.8320 ▼

AUD/NZD: 1.0880 - 1.1120 ▲

AUD/CAD: 0.9480 - 0.9620 ▲