Lockdown Extension Sees AUD Pressured

The weekend saw the scope of Sydney's lockdown broadened to cover the entire Sydney area, with the length of the lockdown increased to 2 weeks. Elsewhere, the city of Darwin implemented a "hard" two-day stay-at-home order after the discovery of a handful of COVID cases. AUD/USD coming under pressure in early trade, down around 3 pips at 0.7588, off session lows of 0.7573

• CBA remains positive on AUD: "AUD can edge higher this week. In our view, the period of AUD weakness following the FOMC's and RBA's updated forward guidance has largely played out for now. In particular, Australian‑US 2 year interest rate differentials have stabilised. Indeed, we still expect the next move in AUD will be higher if the RBA announces a scale back of its asset purchases to $A50bn at its 6 July meeting as we expect. Importantly, despite the divergence in forward guidance between the dovish RBA and the slightly hawkish FOMC, markets are pricing a late 2022 RBA cash rate hike. If the RBA turns more hawkish at the 6 July meeting, the risk is Australian interest rates rise and push AUD higher."
• From a technical perspective last week's AUD/USD gains are likely a correction. The outlook remains bearish following recent weakness. The pair has traded below key support at 0.7532 Apr 1 low and price has also tested the 200-dma. The move lower confirmed a resumption of the reversal that occurred Feb 25 and signals scope for a deeper pullback towards 0.7462 next, the Dec 21, 2020 low. On the upside, initial firm resistance is at 0.7645, the Jun 17 high.
• There are no domestic releases on the economic docket today.