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AUD remains range-bound

Published January 17, 2019

by Nicholas Cork

Brexit continues to dominate the headlines overnight, and after surviving another vote of confidence May has finally opened the floor to the opposition, saying “I would like to invite the leaders of parliamentary parties to meet with me individually, and I would like to start these meetings tonight.”  The opposition leader Corbyn replied “Before there can be any positive discussions about the way forward, the government must remove clearly, once and for all, the prospect of the catastrophe of a no-deal Brexit from the EU and all the chaos that would come as a result of that.” The impact on the markets was minimal with equity markets higher and the GBP sitting near 2 month highs. The DOW was supported by strong earnings from Goldman Sachs and Bank of America, with traders banking on further strong earnings releases continuing to support equity markets.

The AUD continues to bide it’s time in its one week range between 0.7150 and 0.7250,  drifting towards the lower end as the UK dramas continued, but with it being unable to recover on the strong DOW performance it may be a sign it is starting to run out of momentum. AUDcross rates still remain elevated and technically overbought, which may also help to cap the AUD topside for now.  One other concern is that the market doesn’t appear to be factoring much risk in at the moment when considering the gravity of the Brexit situation,  thus the downside may be at risk to any new shocks. Worth noting also that China’s central bank made its largest net injection into the banking system yesterday, adding to evidence that Beijing is shifting to policy easing to counter a slowing economy.

AUDUSD chart (reuters)