Caution is liable to be a key feature over the next 48 hours with unease over the G20 meetings and renewed fears over the US auto sector. In this environment, the Australian dollar will remain vulnerable to a further correction weaker, especially if equity markets are subjected to heavy selling pressure. Underlying sentiment should still be firmer than seen at the beginning of March and capital outflows from Japan will also provide Australian currency support. Overall, there is the risk that the correction weaker will continue slightly further with solid support realistic on dips to the 0.6680 region against the US dollar.
The Australian dollar was unable to make a fresh challenge on resistance above the 0.70 level on Friday and weakened to the 0.69 region in US trading as the US currency gained ground and Wall Street came under pressure. The theme towards weaker risk appetite continued on Monday as Asian stock markets fell significantly and this pushed the Australian currency to lows just below the 0.68 level against the US currency. There will be further caution ahead of the Reserve Bank interest rate meeting this month, although international trends will tend to dominate for now.
International policy responses and co-operation will continue to be watched very closely ahead of the G20 meeting on Thursday. There will be further unease that no significant policy developments will be agreed while there will also be fears of major tensions as any serious disagreements would cause much more serious damage to market confidence. In this environment, risk appetite is liable to weaken slightly further which would tend to benefit the dollar and yen and undermine currencies such as the Australian currency.