Australian Dollar range bound amid ongoing US fiscal stimulus negotiations

AUD - Australian Dollar

Markets remained subdued through trade on Monday, offering little to excite investors in what was a largely uneventful start to the week. In the absence of headline data points the AUD bounced between 0.7140 and 0.7185. The AUD struggle to find any meaningful direction as investors appeared reluctant to push the commodity led unit back above 0.72, instead adding support to the USD following Friday’s better than expected non-farm payroll data and Saturday’s Presidential executive order reinstating some unemployment benefits. The small level of stimulus helped bolster demand for the worlds base currency but fell well short of the relief needed to help guide the economy through this unprecedented crisis. With little of note on the docket this week we expect moves across currency markets will remain muted with swings in risk demand driving direction.

Attentions remain affixed to US lawmakers for any signs a plan for COVID-19 Stimulus can be reached. With markets rewarding aggressive and committed government and monetary support programs a Democrat style package could undermine recent AUD upside through the short term. Acknowledging these short-term risks, we still expect broad based US dollar weakness through the latter half of the year as the push toward fundamentals and the uncertain US backdrop force investors toward other asset corridors.

Key Movers

The US dollar crept higher through trade on Monday, buoyed by Friday’s better than expected Non-farm payroll print and the introduction of new stimulus measures. While talks between democrats and republicans broke down and a full scale fiscal relief package could was not brokered, President Trump, signed an executive order to reinstate unemployment benefits, a stop gap measure until talks resume. The breakdown in negotiations leaves the door open to longer term economic consequences but with talks resuming the market appears confident a deal will be brokered in the short term. If a compromise cannot be reached this week the Dollar may come under sustained downward pressure as markets reward those with aggressive COVID-19 relief plans.

The Euro edged lower amid the US upturn, slipping back below 1.18. Having enjoyed a sharp reversal in fortunes throughout June/July the single currency appears poised to push toward and beyond 1.20 before the end of the year. While expect a consolidation across currency markets through the coming week/weeks the long-term outlook remains intact with positive risk sentiment driving direction.

The Pound crept higher up 0.3% against the dollar but still short of last weeks 5 month high at 1.3185. There remains scope for further GBP upside as improvements in underlying data sets help underpin the recovery off June lows. That said, investors appear reluctant in extending the squeeze on shorts beyond 1.32 at present with some resistance forming. Amid a slew on uncertainty we expect Sterling will enjoy ongoing volatility as Brexit concerns and a sluggish recovery battle broad based US weakness and a shift in underlying market drivers/fundamentals.

Expected Ranges

AUD/USD: 0.7080 - 0.7240 ▼

AUD/EUR: 0.6020 - 0.6130 ▲

GBP/AUD: 1.7980 - 1.8420 ▲

AUD/NZD: 1.0780 - 1.0920 ▲

AUD/CAD: 0.9480 - 0.9620 ▼