Month end rebalancing and risk on mood push AUD back toward 0.69

AUD - Australian Dollar

The Australian dollar trended higher through trade on Tuesday, buoyed by a surge in demand for risk as month end flows dominated direction. Having traded sideways for much of the domestic session the AUD bounced off intraday lows at 0.6838 and pushed back through 0.69 US cents following equities higher. The S&P 500 advanced nearly 1% on the day closing out its best quarterly performance in over 20 years, highlighting just how quickly financial markets have bounced back from the panic that enveloped markets at the beginning of the COVID-19 pandemic. The question now is, can the upturn be sustained? The alarming uptick in new coronavirus infections has certainly curbed the pace of gains enjoyed through April and May, while underlying fundamentals suggest a long and protracted broader economic recovery. Victoria’s introduction of localised lockdown measures across key postcodes ensures the threat of the coronavirus will continue to weigh on consumers and the broader economy well into the 2nd half of 2020. As the risk on move that drove the AUD higher through April and May appears more fragile, we anticipate a period of consolidation. Gains above 0.69/0.6950 will likely be hard won as mounting uncertainty caps upside moves. We expect supports at 0.6830/0.68 will hold through the short term, with a definitive risk off shift the primary threat. Having been one of the best performing major currencies through Q2 we expect a much tighter trading range through Q3. Until markets focus shifts away from risk and back to the underlying economic fundamentals, we expect a protracted period of choppy trade with firmer support and resistance bands.

Key Movers

The Great British Pound was the days top performer on Tuesday, advancing three quarters of a percent after Boris Johnson promised an injection of 5billion pounds into new infrastructure projects in a bid to drive domestic growth and employment. The GBP jumped back through 1.23 and 1.2350 before resistance on moves at 1.2390/1.24 stoppered further gains. Despite the late upturn the Pound was among the worst performers in June as the UK continued its struggle to contain the coronavirus, while hard Brexit fears again loom large with the final divorce date at the end of the year approaching rapidly.

Haven currencies underperformed with the JPY and USD giving up gains as the risk on narrative fuelling equity markets filter into currencies.

Attentions today turn to preliminary US employment data and a host of European and Asian manufacturing data sets. While fundamental still take a back seat to risk, improved manufacturing conditions may over some hope a broader economic rebound is still on track.

Expected Ranges

AUD/USD: 0.6830 - 0.6950 ▲

AUD/EUR: 0.6020 - 0.6180 ▲

GBP/AUD: 1.7820 - 1.8050 ▲

AUD/NZD: 1.0650 - 1.0720 ▼

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