Australian Dollar edges lower as USD recoups July’s losses

AUD - Australian Dollar

The Australian dollar edged lower through trade on Monday, continuing Friday’s correction to touch intraday lows at 0.7070. In the absence of any headline data the AUD succumbed to a broader USD rebound as the worlds base currency benefited from a correction in last months sell off and a rush to mediate a series of USD shorts. The speed of July’s downturn and the AUD bounce through 0.72 has prompted profit taking and a short-term consolidation. The broader risk tone is still intact and USD net-shorts remain near their highest level in 9 years suggesting there is still ample scope for ongoing US weakness, and we anticipate the US dollar will resume its downward trend in the weeks ahead.

Attentions today turn to the RBA as it meets to debate changes to its Monetary Policy program. We anticipate board members will opt to maintain the current platform, however there is scope to suggest Victoria’s extended COVID-19 lockdown and consequential dip in GDP may force the bank to consider additional stimulus measures in the future. We expect the AUD to remain range bound between 0.7030 and .7180.

Key Movers

The US dollar edged marginally higher through trade on Monday as investors continue to unwind short positions following the worst monthly decline in over 10 years. Improvement in the trend of COVID-19’s spread, better than expected manufacturing data and the promise of fiscal stimulus helped drive the USD upward, pushing the dollar index back toward 94, having touched session highs at 93.997.

The Euro fell, touching intraday lows at 1.17 before creeping back above 1.1750. The single currency continues to bask in the afterglow of the EU recovery fund and while last months move may have been overdone , there is scope to suggest the correction through the start of August is merely short term and the upturn will continue though the later half of the year.

The Great British Pound edged lower through trade on Monday, ending the month-long upturn and shifting back toward 1.30. Sterling enjoyed it best month in a decade, when measured against the USD, bouncing strongly off June lows to extend back above 1.31. The speed of the upturn left the door open for yesterday’s correction and investors looked to take profit ahead of what is typically a tricky month for risk assets. Despite Sterling’s outperformance against the USD, it has tracked largely sideways against most other major counterparts, highlighting just how fragile the currency is and confirming impetus behind the upturn has been dollar weakness rather than any inherent strength in the Pound.

Attentions now turn to US lawmakers as, Republicans and Democrats continue to negotiations on the next US fiscal Stimulus Bill. Markets are already pricing in increased government support in the near term, but with partisan politics delaying progress and unemployment benefits no longer available the US economy risk tipping off a fiscal cliff if an agreement cannot be reached in the coming days/week.

Expected Ranges

AUD/USD: 0.7030 - 0.7180 ▼

AUD/EUR: 0.6010 - 0.6120 ▼

GBP/AUD: 1.8120 - 1.8480 ▲

AUD/NZD: 1.0650 - 1.0820 ▼

AUD/CAD: 0.9480 - 0.9620 ▼