Posted by OFX
AUD – Australian Dollar
The Australian dollar rallied overnight having slipped back below 0.68 US cents throughout the domestic session. Risk assets suffered early as investors grappled with reports out of the US and Beijing citing new coronavirus hotspots. In the US 20 states recorded an increase in the spread of Covid-19 cases while Beijing reported a string of new cases after almost 2 months without new infections. The news served as a stark reminder of the risks of opening to quickly and forced markets to check expectations for H2 economic activity. Further downward pressure came following rumours China is considering targeting Iron Ore as diplomatic tensions increase. China’s dependence on the raw material has meant it was considered free from heightened diplomatic hostilities, however if China’s program of restrictions and tariffs does extend to Iron Ore the Australian Economy almost certainly suffer more than China. Having slipped to intraday lows at 0.6780 risk assets found support overnight as the FED announced it will begin buying individual corporate bonds, increasing the scope and scale of its bond buying program. With additional cash set to be in play markets bought the dip and pushed the AUD back through 0.69 to intraday highs at 0.6920.
Attentions today remain squarely affixed to risk. Investors will be keenly attuned to the RBA minutes for any guidance on monetary policy. A sustained risk on move could help the AUD edged back toward 0.70, while a shift in sentiment will likely prompt a move back below 0.69 US cents.
The risk on move overnight saw haven assets close the day lower as investors jumped back into to risk and growth correlated currencies. The USD was the weakest of the majors with the dollar index falling half a percent, while the JPY and CHF also shifted lower. The Dollar came under heavy selling pressure after the FED announced it would expand its bond buying program to include individual corporate bonds. The expansion of its monetary policy program emboldened investors to buy the dip and jump back into risk correlated assets as the availability of cash and central bank funding will seemingly continue through the medium term.
With little of note on the macroeconomic docket today attentions will remain with the broader risk tone. The Bank of Japan’s monthly policy meeting will likely pass without incident while US retail sales are unlikely to tip the scales. The market continues to largely ignore backward looking fundamentals instead looking to sentiment and forward guidance as markers of future performance and signals guiding the speed of any economic recovery. That said a strong retail sales print could bolster risk appetite as consumer spending increases amid easing restrictions.
The UK claimant count will also provide a valuable insight into the health of the labour market. A front runner to official unemployment numbers it offers a sneak peak as to the trend of labour market performance. A print above 400,000 will add mounting pressure to the GBP as it continues to struggle with the coronavirus and opening up the broader economy.
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