The Australian dollar continues to gravitate near 80 cents

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The Australian dollar continues to gravitate around the 80 cent level, boosted by ongoing US dollar weakness.

Here’s the scoreboard as at am AEDT.

AUD/USD 0.7992 , 0.0002 , 0.03%
AUD/JPY 88.4 , -0.12 , -0.14%
AUD/CNH 5.1147 , 0.0001 , 0.00%
AUD/EUR 0.6511 , -0.0002 , -0.03%
AUD/GBP 0.5751 , -0.0011 , -0.19%
AUD/NZD 1.0969 , -0.0011 , -0.10%
AUD/CAD 0.9984 , -0.0001 , -0.01%

Richard Grace, Chief Currency Strategist at the Commonwealth Bank, says the US dollar has come under modest selling pressure in Asia on news that US lawmakers failed to garner enough support to prevent a partial US government shutdown on Friday.

“The USD has opened up a little weaker, but there has been only a modest reaction in the currency markets in early Monday morning Asian trade to the partial US government shutdown,” he said in his morning note.

“The US Senate was short of the required votes on Friday night to get another ‘continuing resolution’ passed to avoid the partial shutdown.”

Grace says both the US Senate and House of Representatives continue debate whether to extend stopgap funding until 8 February with a vote scheduled to occur later today at 7pm AEDT.

“We see USD continuing to remain on the back foot and under downward pressure until a continuing resolution can be achieved,” he says.

Grace says that until an agreement can be reached, the euro, Japanese yen and Swiss franc “are likely to strengthen the most against the USD”.

In comparison, he says the Australian and New Zealand dollar’s will likely underperform “because of the modest implications a partial government shutdown has for global economic growth”.

That may explain why the AUD/USD continues to sit below the 80 cent level this morning despite stronger gains in other major currencies.

AUD/USD Hourly Chart

The euro, in particular, has had a strong start to the trading week, gaining on the back of US dollar weakness and news that Germany‚Äôs Social Democrat Party voted in favour for a new Grand Coalition government with Angela Merkel’s Christian Democrats party.

“This will ultimately have to be ratified by the entire party, but should be a formality,” says Ray Attrill, Head of FX Strategy at the National Australia Bank.

“The Euro has jumped by half a cent, or 0.4%, at the market re-open — a move that has so far at least not lifted other currencies against the US dollar”.

Turning to the session ahead, markets will continue to be influenced by the political debate in Washington given there’s no major market moving economic data scheduled for release.

“US politics threatens to dominate the week,” says Attrill.

“A fresh vote has been scheduled for 1am Washington time Monday morning so those of us watching screens are going to be subjected to a minute by minute barrage of red headlines out of Washington throughout the day.”

At this point, Attrill says that “markets are likely to hold the view this will latest shut-down will again be a short-lived affair”.

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