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Australian Dollar consolidates at two-year highs

BY JOEL HOLMES

Supported early, the Australian dollar reached its highest level in two years when valued against its US Counterpart yesterday after economic prints from China topped forecast. Whilst base metals also enjoyed a strong session, highs of 0.7834 proved to be relatively short-lived for the AUD on Monday as investors remained mindful of the fact the domestic unit has captured gains in excess of 8 percent since the beginning of this year. In looking to add further momentum, opportunities for additional topside arrives tomorrow ahead of a monthly labour market report. Opening marginally softer at a rate of 0.7798  attention today will be focused towards minutes from the Reserve Banks last meeting. 

The New Zealand Dollar has opened weaker against the Greenback ahead of today's inflation data which is expected to come in weaker than the 0.3 per cent Reserve Bank forecast. Economists expect inflation to come in at 0.2 per cent in the three months ended June 30. Today we will also see the release of the Global Dairy Trade auction which will be closely monitored by traders. The NZD/USD pair is currently trading at 0.7327. We now expect support to hold on moves approaching 0.7259 while any upward push will likely meet resistance around 0.7347.

With the domestic docket light and little to excite investors the Pound had a quiet day on Monday against the Greenback moving off ten-months highs of 1.3110 to a low of 1.3046. Financial markets have been focusing on continued Brexit talks with the deadline less than two-years away. Today sees the release of UK inflation which is a key piece of data the Bank of England take note of, inflation has risen steeply after the Pound weakened following the referendum, which had the consequence of pushing up the prices of imports. Analysts predict it will remain 2.9% on the year in June but a slowdown from 0.3 per cent to 0.2 per cent on the month. If inflation does hit 2.9 per cent, the pound could rally. 

It was a relatively slow session to start the week as a public holiday was observed in Japan. Both equities and the US dollar index saw little movement also due to a light economic calendar in the United States. Chinese data was on the pace yesterday, supporting commodity currency risk on movements. GDP, industrial production and retail sales all fared better than expectations. Focus shifts to the Eurozone this week as the ECB meet for their monthly press conference. Traders will be keen to get any further hints of bond tapering by ECB President Mario Draghi as the EUR/USD nudged up towards 1.15. USD/JPY looks to push back up to the trend line between 112.80 and 113.50 ahead of Bank of Japans policy meeting on Thursday afternoon.