Australian dollar recovery falters

Daily Currency Update

AUD - Australian DollarThe Australian dollar fell through trade on Tuesday, drifting toward 0.7510 despite an improved demand for risk and rising commodity prices. US and European equities rallied toward record highs, while treasury yields remained flat and the Bloomberg commodity index marked its fifth consecutive daily appreciation, well and truly recovering the mid-June, post FOMC sell off. Against this backdrop we would ordinarily expect the AUD to have outperformed most major counterparts, instead the currency struggled to mount any upward momentum. With little catalyst for the AUD sell off, we can only point to increasing uncertainty surrounding the emergence of the COVID-19 Delta variant, particularly across Europe and emerging markets. There is a growing concern this virulent strain of the virus will devastate countries that remain largely unvaccinated, further derailing the global economic recovery and compounding current transitory inflation concerns. Despite the recent depreciation, we still see the AUD as fundamentally undervalued and anticipate It will continue to outperform moving into years end. That said, near term headwinds should ensure upside is limited through the coming days and weeks, with the Delta strain and evolving pandemic the headline risk that could force a change in outlook.