AUD under pressure as US dollar momentum builds

Key Movers

The US dollar extended last weeks gains through trade on Monday, lifted by a falling Euro and expectations for an increase in fiscal support. Having touched near three year lows at the beginning of last week the narrative has shifted through the last 3 sessions as investors begin to move away from inflation and monetary policy expectations toward hopes for a vaccine lead rebound and higher treasury yields. With Democrats now controlling both the House and the Senate markets are beginning to price in an increase to pandemic relief. While additional government spending would ordinarily hamper US dollar gains, widening treasury yields have helped cap losses and drive dollar support. While the shift in direction has not yet undermined the broader downward narrative there is now scope to suggest the US dollar could recouping losses through the medium term.
The Euro moved toward 3-week lows, giving up highs above 1.23 to shift to session lows at 1.2154, while Sterling drifted to intraday lows at 1.3450.
With little of note on the global macroeconomic docket our attentions remain with the broader narrative. We will be watching treasury yields as an early marker for shifts in direction through the sessions ahead. A further widening in US treasury yields and a break above November highs could prompt further US dollar upside.