4th November 2020 - AUD pulls back from three-week highs at 0.7175 as all eyes focus on US election


Good Morning,

Market Headlines

Equities rallied, and the dollar plunged as the US votes. The presidential election took centre stage and will remain the main market motor until a clear winner is declared. Given the pandemic context and mail-in ballots, which usually take longer to count, the final result may be available in a few days. Concerns are that the absence of a clear winner could unwind turmoil in the US. Civil unrest is in the election’s menu, alongside Trump’s menace to take legal actions if the results are not known this Wednesday. Commodities, Brent crude oil futures rose 2.7% to $40.00 amid upbeat risk sentiment as well as indications output could be curbed, copper rose 0.5%, iron ore fell 1.1% to $117.05, and gold rose 0.6%.

Currency

AUD/USD: 0.7039 – 0.7175 - a three-week high, as markets shrugged off yesterday’s dovish RBA outcome in favour of following US election implications

EUR/USD: 1.1654 – 1.1739

GBP/USD: 1.2925 – 1.3077

USD/JPY: 104.44 – 104.80

USD/CAD: 1.3104 – 1.3229

NZD/USD: 0.6629 – 0.6717

AUD/JPY: 73.65 – 75.01

AUD/NZD: 1.0618 – 1.0692

AUD Thoughts

- AUD/USD pulls back from three-week highs at 0.7175

- The aussie rallied on Tuesday with all eyes on the US elections.

- The market overlooks RBA's dovish move.

The Australian dollar has surged on Tuesday amid a strong risk appetite, with all eyes on the US presidential election. The market seem to have shrugged off COVID-19 fears, and favour a clear Democrat victory that would unlock the fiscal stimulus plan, ultimately undermining USD strength. This favourable scenario has helped the risk-sensitive AUD to surge about 1.8% so far this week, unaffected by the dovish move of the RBA. The RBA slashed its benchmark interest rate to an all-time low of 0.1% earlier today and announced an AUD100 billion buying program.

AUD/USD was well supported overnight and peaked at a high of 0.7175. Offering interest at 0.7200 and again at 0.7240/50 likely to slow any further rise while demand in the 0.7080 region should prove supportive on the first attempt.

Event Risk Data Today

Australia: Preliminary estimates showed a 1.5% decline in September retail sales; but Q3 real retail sales will still be up very strongly, circa 6%. Weekly payrolls (to Oct 17) continue to record small moves around a flat trend (prior: -0.4%).

NZ: Market expects the Q3 unemployment rate to rise in Q3 (market f/c: 5.3%) following a surprise drop to 4.0% in Q2 as lockdowns hindered job-seekers. Wage inflation will likely be subdued in the post-Covid environment (Westpac f/c: 0.3%, market f/c: 0.2%).

China: The Caixin services PMI should point to external and domestic demand remaining robust (prior: 54.8, market f/c: 55).

Europe: Government lockdowns are expected to hit the Markit services PMIs hard in the Euro Area and UK.

US: ADP employment is expected to see a gain of 650k on continued service-sector hiring (prior: 749k). Another month of expansion appears likely in the October Markit service and ISM service PMIs given measures of mobility improved in the month (prior and market f/c: 56). The trade deficit narrowed in September, with imports falling slightly as exports recovered (prior: -$67.1bn, market f/c: $63.9bn).

US: Results for the 2020 US Presidential Election are expected to start coming in around midday Wednesday ADST (2pm NZT).

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