The Australian dollar remains supported on dips -- for now

Ethan Miller/Getty Images
  • The Australian dollar has opened mixed in Monday, gaining against the euro and UK pound but giving back ground against the US dollar and Japanese yen.
  • The big mover in early trade has been the GBP, suffering from another bout of Brexit uncertainty.
  • The economic calendar is quiet in the first half of Monday’s trading session, leaving sentiment, technicals, positioning and headlines to dictate direction.

The Australian dollar endured a quiet trading session on Friday, paying scant attention once again to the wild gyrations seen in stocks during the session.

Here’s the scoreboard at 8am in Sydney on Monday.

AUD/USD 0.7111 , -0.0006 , -0.08%
AUD/JPY 79.73 , -0.13 , -0.16%
AUD/CNH 4.9210 , -0.005 , -0.10%
AUD/EUR 0.6159 , 0.0005 , 0.08%
AUD/GBP 0.5433 , 0.0011 , 0.20%
AUD/NZD 1.0932 , -0.0003 , -0.03%
AUD/CAD 0.9252 , -0.001 , -0.11%

Against the greenback, the AUD/USD currently trades at .7111, consolidating upon the modest gains achieved in the latter parts of last week.

On Friday, the AUD/USD traded in a thin range between .7099 to .7139, showing no real reaction to the late flurry of buying on Wall Street that helped propel the major US indices to gains ranging from 1.15% to 2.29%.

The AUD/USD closed the session at .7117, a similar level to where it currently trades. A modest rebound in US government bond yields likely helped to support buying in the greenback, offsetting any benefit the Aussie may have received from firmer commodity prices during the session.

Ray Attrill, Head of FX Strategy at the National Australia Bank, said the modest rebound in the AUD/USD — seeing it climb from multi-year lows struck earlier in the week — could reflect that currency speculators are already positioned for continued weakness in the Aussie.

“[It’s noteworthy] just how short speculative positioning in the AUD and NZD appears to be, at least judging from the weekly Chicago futures market positioning data where shorts in the NZD extended to a new record extreme in the week through last Tuesday, with AUD now not too far behind,” he said.

That saturation in short positioning likely explains why the AUD and NZD failed to decline despite a sharp deterioration in investor risk sentiment in the latter parts of last week.

Against the major crosses, the Aussie has rallied hard against the British pound, reflecting renewed uncertainty over Brexit negotiations between the UK and EU.

“The GBP was by far the worst performing G10 currency on Friday with no confirmation that a Brexit Withdrawal agreement was any closer ahead of Thursday’s EU Summit at which the hope was to be able to agree the outline of a UK Withdrawal Agreement to then be inked at a special EU Summit in November,” Attrill said.

“Talks on Sunday in Brussels to this end have reportedly ended with no breakthrough with the Irish border question still the sticking point.

“At the same time, we have reports of potential Cabinet rebellions against UK PM May’s latest proposals to extend the Brexit transition agreement beyond its currently proposed end-2020 deadline, in order to allow more time to sort out future trade relationships in a manner that would solve the Irish border conundrum.”

The lack of certainty has weighed upon the pound, helping to boost the US dollar against most of the major crosses in early trade on Monday, including against the Aussie dollar.

Separate geopolitical concerns surrounding China and Saudi Arabia may also be contributing the modest risk-off tone seen on Monday.

Investing.comAUD/USD Hourly Chart

Over the remainder of the session, sentiment, technicals, positioning and headlines look set to dominate once again given a quiet economic calendar on Monday.

The main highlight comes from the United States with the release of retail sales data for September at 11.30pm AEDT. Headline sales growth of 0.5% is forecast, with the sales in the retail control group — deemed to be more aligned to consumption in US GDP — tipped to lift by a smaller 0.3%.

Outside of that release, markets will also receive the latest Empire State manufacturing index and business inventories from the United States along with Japanese industrial production figures for August.

Given the quiet calendar, one suspects the performance of Chinese financial markets may well dictate sentiment across the broader Asian region. They’ll resume trade from midday AEDT.

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