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Australian Dollar continues its advance to 80 US Cents

BY JOEL HOLMES

Whilst the worlds reserve currency continued to drown yesterday the Australia dollar took flight, racing to levels not seen since May 2015. Suggesting that the Reserve Bank of Australia possess a more hawkish view of the economy than many had expected; minutes  from the Central Bank’s last meeting showed that it expected growth to have picked up notably during the second quarter. Presenting the largest shock, comments that neutral interest rate settings represent levels closer to a cash-rate of 3.5 percent, the Australian dollars reaction was swift, rocketing to a high of 0.7942 versus its US Counterpart. Opening 1.5 percent higher this morning at a rate of 0.7915, volatility levels are likely to remain elevated today ahead of domestic labour market numbers.   

The New Zealand dollar traded in a wide range against the US dollar overnight amongst some heavy currency swings across the globe. Earlier in the session, NZ’s Q2 Inflation numbers came in under expectation pushing the Kiwi 60 pips lower to around 0.7265. Following the collapse of the US healthcare bill however, the Kiwi soared to 0.7353 to open this morning at 0.7342. Despite the softer CPI numbers in NZ, the Kiwi traded within a tight range against the other majors. Against the Sterling, the Kiwi extended slightly to open at 0.563 while conversely falling 0.2% against the Euro to open at 0.6355. Across the Tasman however, the hawkish comments from the RBA minutes has sent the Aussie flying across the board and driven the Kiwi cross rate down by about 1% to open at 0.9276. With a quiet day on the domestic front, all eyes now turn to Australian unemployment numbers and Japanese monetary statements for direction.

The Great British Pound has wiped off most of its early gains this week against the U.S Dollar moving from a high of 1.3125 to a low of 1.3005 following a weaker than expected CPI print, the headline expectation was 2.9% however the data came in lower at 2.6% which was led by volatile and core components. Core inflation declined much more than consensus had projected (2.6%), falling 0.2pp to 2.4%. The downside inflation surprise coupled with recent softer than expected UK data the Bank of England is likely to maintain its current stance on interest rates. Looking ahead the economic data is light today and we can expect immediate support for the pair at 1.3000 with resistance at 1.3120. 

Large movements by the Australian Dollar dominated headlines yesterday as the US Dollar continues its drive lower. Both equity markets and commodity prices finished flat for the day as the US Dollar Index (DXY) fell 0.6%, a 10-month low. News of the United States healthcare bill being rejected in the senate did further harm for the greenback as markets question President Trumps ability to close deals. The bears came out to play as USD/JPY slid from its retest of the 113.00 handle to just hang on above 112.00 in the close of the North American session. The Euro was the biggest winner, seeing a 1% gain for the day, at one point rising from 1.1470 to an intraday high of 1.1585 before settling slightly lower this morning to open at 1.1555. After a day of large swings, we expect a calmer day with little macroeconomic data released around the globe today.