AUD struggle to break back above 0.73 amid thin US holiday trade

AUD - Australian Dollar

The Australian dollar offered little to excite investors through trade on Monday, maintaining a 30-point range and bouncing between 0.7270 and 0.7300. Having given up highs above 0.74 the AUD struggled as Labour day weekend in the US ensured volumes remained thin and markets on edge following last weeks rout on equities. Both the S&P 500 and Nasdaq closed the week lower, prompting a broader risk off tone and amplifying the AUD correction following Wednesday’s poor GDP print.

The AUD appears range bound with support forming on moves approaching 0.7260 and resistance above 0.74 intact for now. Investors continued to ignore broader fundamentals instead chasing positive sentiment as a catalyst to drive direction. Despite the correction last week, the AUD continues to mark higher lows and higher highs, suggesting there is still room to the upside. With little of note on the docket this week we expect the AUD will remain contained within recent ranges with a break in sentiment the agent driving a break in either direction.

Key Movers

The Great British Pound was the days big mover, correcting lower following heightened concern a Brexit trade agreement will not be reached. Reports emerged overnight that Britain is planning to enact new legislation that will seek to override key components of the Withdrawal Agreement, a move that could undermine negotiations to date and derail hopes for a clean break. Doubling down Boris Johnson suggested that if a deal could not be reached by mid-October then it is unlikely a trade deal will be agreed, imploring all side should simply move on and work on contingency plans. Sterling lost almost 1% through the day, tumbling below 1.3250 and 1.32 to touch intraday lows at 1.3140. With uncertainty around Brexit growing and the likelihood of a no deal divorce increasing we expect increased volatility moving into the latter half of Q3 and into Q4.

The US dollar advanced against a basket of major currencies amid thin volumes and a lack of direction through Labour day Monday. With most investors offline markets remained wary of extending recent moves, led by last weeks rout on equities, instead holding fire until business resumes as normal on Tuesday. The US dollar having bounced of 28-month lows appears to have found some support as markets stop to take stock of recent moves ahead of further anticipated weakness leading into the end of the year. With little of note on today’s macroeconomic docket attentions turn to Thursday ECB policy meeting and Fridays Core CPI inflation print as key markers for direction into the weekly close.

Expected Ranges

AUD/USD: 0.7250 - 0.7360 ▼

AUD/EUR: 0.6080 - 0.6180 ▲

GBP/AUD: 1.7920 - 1.8280 ▼

AUD/NZD: 1.0820 - 1.0920 ▲

AUD/CAD: 0.9480 - 0.9590 ▲