US Dollar strength forces the Aussie back below 0.72

AUD - Australian Dollar

The Australian Dollar surged to an eight-month high yesterday topping 0.7275 on the charts vs the Greenback fuelled by a combination of factors including increased demand for risky assets and accelerating commodity prices especially in iron ore and gold. Unfortunately the move was short-lived and lost all ground in the late hours of the North-American session as Gold prices dropped 3% following the release of the US Federal Reserve minutes. In the July monetary policy meeting the Fed said they saw little benefits from a yield curve control program, whilst at the same time shed little light on any new initiatives from the central bank.

Locally, we saw the release of Westpac-Melbourne Institute Leading Index, the index is designed to predict the direction of the economy and recent figures show the growth rate still to be in negative territory rising to -4.37 percent in July from -4.43 percent in June. With Victoria representing around 25%, the economic contraction in the state caused by the hard lockdown following the renewed virus outbreak will offset the ongoing recovery in other states, said Westpac.

Opening this morning around 0.7180, we can expect to see near-term support levels at 0.7170 followed by 0.7135. On the upside, resistance sits at 0.7245 and 0.7280. Looking ahead, there are no scheduled releases today so we can expect the Aussie to take direction from commodities and equities.

Key Movers

The US Dollar was the best performer overnight, bouncing back 0.8% on the US Dollar Index after a number of days in the red. The catalyst for the shift in direction came from the release of the FOMC July Meeting Minutes which had a few surprising takeaways. In the first instance, there appears to be a consensus forming for further forward guidance. The minutes note, “…providing greater clarity regarding the likely path of the target range for the federal funds rate would be appropriate at some point.” Secondly, and maybe more importantly, the Fed mentions that there is little consensus to adopt a yield curve control program and writes, “…participants judged that yield caps and targets were no warranted in the current environment but should remain an option that the Committee could reassess in the future if circumstances changed”. Overall, the perceived small shift towards a more normalized monetary policy led to broad based US Dollar demand which saw the Greenback claw back some of its more recent losses.

In other key movers, the Euro and Great British Pound also saw some movement with both being on the receiving end of some profit-taking. The Sterling fell around 1% to open this morning at 1.3109 and the Euro moved back down to 1.850.

Expected Ranges

AUD/CAD: 0.9441 - 0.9552 ▲

AUD/EUR: 0.6011 - 0.6108 ▼

GBP/AUD: 1.8154 - 1.8337 ▲

AUD/NZD: 1.0905 - 1.145 ▲

AUD/USD: 0.7126 - 0.7231 ▲