FXStreet reports that AUD/USD is likely to be in a period of consolidation over the near-term, with technical support at 0.70. Localised COVID-19 outbreaks have little bearing on the aussie as fiscal flexibility and the green light from the central bank for the pair rally support the AUD, according to economists at HSBC.

“The AUD is likely to be in a period of consolidation; prior resistance around 0.70 should turn into a key support level for AUD/USD.”

“The path of COVID-19 continues to have little bearing on the AUD. One key factor is the significant fiscal firepower at the government’s disposal to mitigate the economic impacts. In fact, the Australian government announced an extension of its wage subsidy programmes on 7 August.”

“The Reserve Bank of Australia (RBA) has given the green light to the rally in the AUD. From August’s minutes, the RBA noted that the AUD strength is broadly in line with its fundamentals, such as commodity prices and interest rate differentials. At the parliamentary testimony on 14 August, RBA Governor Lowe reiterated that negative rates in Australia were ‘extraordinarily unlikely’. He also, once again, ruled out direct monetisation of government debt and FX intervention. Our economists see the RBA being on hold over the coming quarters, with the next monetary policy meeting due on 1 September.”

“We believe the ability to flex fiscal firepower and the green light from the central bank for the aussie rally are AUD bullish. We still see the AUD holding on to recent gains and possibly strengthening further next year, even if the currency remains sensitive to RORO over the near-term.”