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AUD – Australian Dollar
The Australian dollar edged higher through trade on Tuesday, pushing back through 0.7150 in what was an otherwise lacklustre day across both currency and equity markets was. Having crept upward throughout the domestic session following a stronger than anticipated trade surplus and a relatively rosy RBA outlook. The Reserve bank offered few surprises, maintaining its current interest rate setting and only marginally adjusting bond purchases, while re-iterating their view, the economy was performing better than initially expected. While they did point to a sharp decline in GDP through 2020 the promise of a quick recovery through 2021 helped underpin the AUD. The extended and tightened lockdown in Victoria does however pose a significant threat to future growth prospect as the impact to key business across the local economy worsens. Some estimates suggest north of 100,000 business will not survive the new round of lockdown with a rush on insolvencies after job keeper and fiscal support measures ease.
Despite the dour domestic outlook the AUD remains well bid as positive sentiment and a softening USD underpin the shift above 0.70 cents. While the 2nd wave poses a threat to our domestic recovery, our outlook comparable to other major counterparts remains rosy. Attentions today remain affixed to the promise of US fiscal stimulus and fluctuations in risk demand.
The US dollar fell through trade on Tuesday, giving up hard fought gains through Friday and Monday as talks between Republicans and Democrats on the next round of COVID-19 stimulus appear stymied by partisan differences. Having suffered its worst monthly decline in a decade, the dollars short term prospects now rest in the hands of Fiscal support plans. Government relief is crucial in seeing the US through the COVID-19 pandemic and with unemployment benefits ending last week, failure to deliver a new round of support immediately risks an even steeper economic downturn as consumer sentiment and spending essentially evaporates. Currency markets remain ties to risk and fiscal spending at present. If Congress can agree an extensive and wide reaching relief program we would expect the USD to find support and reverse July’s losses, however a republican led program, targeting the bare minimum will likely chasten investors and underpin the recent downturn.
The Great British Pound edged lower, dipping below 1.30 as fears a 2nd wave of infections will derail the recovery dampened demand and prompted a shift away from near 5-month highs. Despite registering its largest monthly rally in more than 10 years there are significant headwinds ahead for the GBP. Brexit negotiations remain at loggerheads as the December deadline looms larger, while the threat of COVID-19 is far from over and it is unlikely the economy will be operating at 100% until well into 2021. WE expect resistance on moves approaching 1.33/1.35 with US weakness the key to any sustained upturn.
AUD/USD: 0.7080 – 0.7220 ▲
AUD/EUR: 0.5980 – 0.6120 ▲
GBP/AUD: 1.7980 – 1.8420 ▼
AUD/NZD: 1.0710 – 1.0880 ▲
AUD/CAD: 0.9480 – 0.9620 ▲
Posted by OFX