AUD – Australian Dollar
The Australian dollar remained range bound through much of Tuesday maintaining Monday’s sluggish start to the week and struggling to break back above 0.72 US cents. Moves across currency markets were largely muted and the AUD bounced between 0.7150 and 0.7195 despite broad based US dollar softness. With little domestic data on hand to drive direction the AUD drifted aimlessly through the local session before creeping higher overnight. A sharp decline in US consumer confidence and a softening jobs market forced the world’s base currency lower across the board and allowed the AUD to test 0.72 again.
Positive sentiment continues to steer direction and underpin the AUD rally. Reports a conversation between top US and Chinese trade officials was successful helped ease trade fears and bolstered demand for risk through trade on Tuesday.
Attentions now turn to commentary from Fed Chair Jerome Powell and any signal the Fed will move to change its inflation management policy.
Currency markets offered little to excite investors through trade on Tuesday with broader moves largely contained. The US dollar edged lower against a basket of counterparts following a steep decline in domestic consumer confidence. Conditions deteriorated at a faster pace than anticipated with confidence dipping to a 6-year low as consumer concerns regarding employment and the softening jobs market escalated. With millions of Americans thrust into unemployment and bipartisan politics delaying renewed unemployment benefit programs there is a real fear consumer led growth, the engine room of the US economy, will remain sluggish well into 2021, slowing the recovery.
The Japanese Yen was the day’s worst performer, falling as global interest rates rose. The correlation between global rates and the currencies’ performance seems intact and the USD/JPY pushed through 106.30. The GBP outperformed against all major counterparts pushing back through 1.3150 following an uptick in risk demand. Easing US/China trade tensions overshadowed weaker domestic retail sales data. While Sterling has enjoyed a remarkable resurgence through the last 6 weeks, its rally comes on the heels of a broader US dollar decline. While there is scope for ongoing dollar softness, Brexit concerns and the economic effects of the Pandemic will likely weigh on direction through the months ahead.
Attentions now turn to commentary from Fed Chair Jerome Powell Thursday ahead of this year’s Jackson Hole Symposium on monetary policy. Investors will be keenly attuned to any signal from the FOMC that they will shift their inflation target away from a fixed point to an average based system. Such a move would allow for a higher tolerance to inflation before the Fed steps in to raise interest rates, effectively maintaining softer monetary policy for longer, another negative for the dollar.
AUD/USD: 0.7130 – 0.7260 ▲
AUD/EUR: 0.6020 – 0.6130 ▼
GBP/AUD: 1.8020 – 1.8480 ▲
AUD/NZD: 1.0920 – 1.1050 ▲
AUD/CAD: 0.9380 – 0.9520 ▼