AUD vulnerable as risk sentiment sours

OFX Daily Market News

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AUD – Australian Dollar

The Australian Dollar opens lower this morning, falling overnight as the US dollar recoups early week losses. Having touched intraday highs at 0.6522 the AUD fell back through 0.65 following commentary from Federal Reserve Chairman Jerome Powell, wherein he rejected the prospect of negative interest rates. Powell struck a dovish and downbeat tone when assessing the economic outlook suggesting the US economy was only at the beginning of an extended period of weak growth. Despite the gloomy outlook investors unwound bets for negative interest rates, propping up the USD and forcing the AUD toward intraday lows at 0.6437.

Risk continues to drive direction and with concerns of longer lockdowns amid a 2nd wave of infections weighing on markets, moves beyond 0.6530/0.6550 remain hard won through the short term. With the virus continuing to cloud long term forecasting the AUD remains vulnerable to ongoing shifts in the broader risk narrative. Concerns countries like the US may be relaxing social distancing restrictions too early are building prompting many investors to begin pricing in an extended economic downturn giving up hopes of a swift rebound in growth prospects.

Attentions today turn to domestic unemployment and labour market numbers. With almost 600,000 jobs expected to have been lost from the economy and the unemployment rate tipped to reach 8.3%, todays print offers an invaluable insight into the scale of damage caused by the coronavirus through the peak of social distancing measures.

Key Movers

The US dollar advanced through trade on Wednesday buoyed by Federal Reserve Chair Jerome Powell’s staunch rejection of negative interest rates and a broader risk off push. Equities fell as traders confidence of a swift economic recovery faltered following commentary for Powell and Leading infectious disease spokesman Dr Anthony Fauci. Powell proffered a gloomy economic outlook suggesting an extended period of economic weakness lay ahead as COVID19 continues to restrict/limit any return to normalcy, while Fauci issued a stark reminder of the risks in opening up to early, suggesting mortality rates could sky rocket and the burden on public health and finances would likely mean a longer period of economic activity than that suffered by remaining in lockdown through the short term. The dire outlook forced investors to dump risk assets, driving the dollar high amid haven flows. The AUD, CAD, NZD and GBP all fell pushing the DXY index back above 100 to touch intraday highs at 100.26.

Attentions remain squarely affixed to risk, with demand driven by evolving expectations for economic recovery. Despite having seemingly controlled the initial outbreak it is increasingly apparent a quick-fire economic recovery is becoming less and less likely prompting investors to reassess the recent risk driven recovery and perhaps opening the door to another risk off move to haven assets.

Expected Ranges

AUD/USD: 0.6320 – 0.6530 ▼

AUD/EUR: 0.5910 – 0.6050 ▼

GBP/AUD: 1.8720 – 2.0020 ▼

AUD/NZD: 1.0620 – 1.0820 ▲

AUD/CAD: 0.8980 – 0.9150 ▼


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