Daily Currency Update

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Aussies tests supports as spread of Coronavirus dampens market sentiment

AUD - Australian Dollar

The AUD edged lower through trade on Tuesday testing supports at 0.6850 having marked intraday lows below the key support handle at 0.6842. Broader market sentiment was largely subdued throughout the day as mounting concerns the recent outbreak of the Coronavirus in China could dampen domestic consumer sentiment and spread abroad in the wake of the upcoming Chinese New Year, a busy travel period. The AUD has struggled to extend significantly beyond supports throughout the week thus far as investors seem reluctant to really test support and resistance handles ahead of tomorrow’s all-important labour market report. Employment growth and the unemployment rate remain key indicators of broader economic health and a downturn could ignite calls for the RBA to cut interest rates again with a push to consider QE stimulus measures. While the implementation of a QE programs remains unlikely at this point renewed softness across the domestic economy will weigh on the AUD and perhaps force a correction toward the October 2019 lows. Fair value estimates suggest there is upside potential for the Aussie dollar and a move toward 0.71 in the second half of the year wouldn’t be a great surprise. That said upside gains hinge on stability across monetary policy and any shift in RBA guidance would likely skew the balance of upside and downside forces toward the downside.

Key Movers

The Great British Pound was the best performer among major currencies on Tuesday, advancing through 1.30 and extending towards key short-term resistance handles at or near 1.3075/85 following an upturn in domestic jobs growth. The British economy added new employment opportunities at its fastest pace in nearly a year through the last quarter of 2020, easing mounting pressure on the Bank of England to cuts interest rates on January 30. Pricing on BoE policy action fell marginally in the wake of the print as attentions now turn to Friday’s all-important Purchasing Managers Index report. A strong PMI print will further undermine the case for an immediate rate cut and would afford the BoE more time to assess economic performance before cutting rates and offers the opportunity for GBP upside and a meaningful extension beyond 1.30.

Expected Ranges

AUD/USD: 0.6820 - 0.6930 ▼

AUD/EUR: 0.6150 - 0.6210 ▼

GBP/AUD: 1.8850 - 1.9210 ▲

AUD/NZD: 1.0350 - 1.0450 ▼

AUD/CAD: 0.8920 - 0.8980 ▼