Risk on narrative continues to drive AUD upturn

Daily Currency Update

The Australian dollar upturn continued through trade on Wednesday despite Q1 GDP data indicating the Australian economy had tipped into a technical recession. Equities and growth sensitive currencies rallied for an 8th consecutive day amid sustained appetite for risk and an upswing in Chinese macroeconomic data sets, fostering further AUD gains and prompting a move to intraday highs at 0.6980. The AUD found added support in Chinese Caixin services data printed above the line of expansion and contraction for the first time since the coronavirus crisis enveloped the world’s second largest economy. Investors were encouraged by the bullish print as major economies turn to China as a marker or blueprint for economic activity amid looser social distancing restrictions. Having fallen short of a break back above the psychological 0.70 handle the AUD meet some selling pressure falling briefly below 0.69 to touch intraday lows at 0.6855 before pushing higher into the daily close and this morning’s open, where it currently buys 0.6920 US cents.
Attentions remain squarely attached to risk as the disconnect between fundamentals and direction continues. The market continues to overshoot in either direction and while we would expect a moderation in the medium term there is further scope for AUD upside in the short term as long as the risk on narrative remains in play. Australia remains well placed to bounce out of the coronavirus pandemic quickly, while China’s recovery and massive domestic fiscal stimulus measures will ensure a sustained demand for Iron ore, copper and other key Australian commodities.
Watch resistance on moves approaching 0.6980/0.70 with support in play on moves below 0.6850 and 0.68.