Forex Market: AUD/USD maintains gains in risk-on trade, RBA Minutes signal downturn may be less steep than expected

AUD/USD maintained gains achieved in the prior two trading days on Tuesday, as the announcement of the Federal Reserve’s corporate bond purchasing program spurred risk-on mood across financial markets.

The US central bank said that it would begin buying a diversified range of investment grade US corporate bonds from Tuesday as part of an earlier announced stimulus program.

Risk-sensitive currencies such as the Australian Dollar received additional support following a Bloomberg report that stated the Trump administration was readying a $1 trillion infrastructure proposal in an attempt to prop-up the world’s largest economy.

“As long as governments around the rest of the world continue to ease their lockdown measures, and as long as data continues to suggest that the deep economic wounds due to the fast spreading of the coronavirus are behind us, we would see decent chances for risk assets to stay supported,” Charalambos Pissouros, senior market analyst at JFD Group, pointed out.

Meanwhile, the Minutes from Reserve Bank of Australia’s June policy meeting showed that despite the coronavirus pandemic had pushed Australia’s economy into the most severe contraction since the 1930s, there was a chance the downturn would be shallower compared to what policy makers had earlier anticipated. The Minutes also stated that the rate of new infections had decreased considerably and some restrictive measures had been eased earlier than had previously been thought possible.

On the other hand, “the outlook remained highly uncertain and the pandemic was likely to have long-lasting effects on the economy.”

RBA policy makers once again emphasized their commitment to support jobs, incomes and businesses in Australia.

As of 11:30 GMT on Tuesday AUD/USD was inching up 0.03% to trade at 0.6922, after touching an intraday high of 0.6977 in early Asian session, or a level not seen since June 11th (0.7005).

From macroeconomic perspective, today’s focus will be on the monthly report on US retail sales at 12:30 GMT. Analysts on average expect an 8.0% monthly growth in sales in May, following a 16.4% slump in April. The latter has been the steepest monthly drop on record due to the coronavirus pandemic-related lockdown measures.

Additionally, core retail sales, which exclude large ticket prices and historical seasonality of automobile sales, are expected to increase 5.4% in May, following a record monthly drop of 17.2% in April.

A separate report by the Board of Governors of the Federal Reserve at 13:15 GMT may show industrial production in the country expanded at a monthly rate of 2.9% in May, according to market expectations, after shrinking at a record rate of 11.2% in April. US manufacturing output is expected to decrease 4.6% in May from a month ago, following a 13.7% slump in April.

Market players will be also paying attention to Federal Reserve Chair Jerome Powell’s testimony on the bank’s semi-annual monetary policy report in front of the Senate Banking Committee at 14:00 GMT.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled 6.4 basis points (0.064%) as of 10:15 GMT on Tuesday, down from 7.2 basis points on June 15th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6874
R1 – 0.6971
R2 – 0.7022
R3 – 0.7119
R4 – 0.7217

S1 – 0.6823
S2 – 0.6725
S3 – 0.6674
S4 – 0.6623

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