Australian Dollar marks fresh highs as US slide gathers momentum

AUD - Australian Dollar

The Australian dollar extended its rally through trade on Tuesday amid record gains across equities and sustained US dollar weakness. The S&P 500 marked fresh highs and appears poised to close above the February 2019 peak. As confidence COVID-19 case numbers across the US are trending in the right direction markets have chased risk assets higher fuelling the fastest recovery on record. The AUD followed equities pushing through 0.7250 to touch intraday and year to date highs at 0.7265. The wide held market consensus is for a weaker US dollar. Having traded to its lowest level in 2 years amid a run of speculative short positions questions are being raised as to how far the dollar can slide. While we have seen a renewed demand to short the world's base currency, when compared with past dollar downturns it would appear there is ample scope for further weakness, opening the door for the AUD to extend gains and test 0.73/0.74.

With little headline data on hand today attentions turn to the Federal Reserve and FOMC meeting minutes. With many expecting the Fed will amend its average inflation rate tolerance investors will be keenly attuned for any commentary that suggests a change is imminent.

Key Movers

The Pound outperformed all major counterparts through trade on Tuesday, pushing through 1.32 and marking a fresh 8-month-high amid ongoing US dollar weakness. The US Dollar index touched a two-year low overnight as a renewed influx of positive sentiment fuelled a move away from safe haven assets, while a declining yield advantage and an elongated economic recovery weigh further on the world's base currency. Sterling touched intraday highs at 1.3249 while the Euro closes in on 1.20 touching 1.1966 before edging marginally lower into this morning’s open.

Bearish bets on the USD hit their highest level in almost 10 years last week and while we have seen a rapid sell off through the last 6 weeks momentum shows little sign of slowing, with ample room for the dollar to extend the downturn. Despite the largely bleak economic outlook positive sentiment continues to fuel demand for risk assets as unprecedented Fed monetary policy settings ensure liquidity across financial markets remains intact. With little of note on docket today attentions turn to the FOMC minutes for any signal or sign a change in monetary policy is imminent.

Expected Ranges

AUD/USD: 0.7130 - 0.7290 ▲

AUD/EUR: 0.5990 - 0.6120 ▼

GBP/AUD: 1.8020 -1.8480 ▲

AUD/NZD: 1.0880 - 1.1080 ▼

AUD/CAD: 0.9480 - 0.9590 ▼