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Geopolitical Risks sees Shift to Safe Haven Currencies

BY JOEL HOLMES

Trading as low as 0.7855 versus its US Counterpart yesterday the Australian dollar has again failed to inspire over the past 24 hours. Having only a modest reaction to CPI and PPI prints from China which both narrowly missed forecast, it has instead been the attempts of Trumps administration to calm fears of a full blown armed conflict with North Korea overnight which has been the largest contributor to underlying currency flows. Opening 0.2 percent lower this morning at a rate of 0.7885, today’s session offers little to investors who will instead be forced to wait on tomorrow evenings key US CPI print. 

The New Zealand Dollar advanced this morning against the Greenback after the RBNZ held the official cash rate at 1.75 per cent. The kiwi rose higher on the back of the Reserve Bank's neutral tone in its May statement. This came as some surprise despite previously sluggish economic data and a softer inflation outlook. The RBNZ still believe the next move on interest rates will be up, but not in the foreseeable future. The Kiwi reached a high of 0.7368 against the Greenback. The NZD/USD pair is currently trading at 0.7360. We now expect support to hold on moves approaching 0.7300 while any upward push will likely meet resistance around 0.7430.

The Great British Pound offered little through trade on Wednesday struggling to break outside 50 point bounds in an environment distinctly lacking risk appetite. Sterling bounced between 1.2970 and 1.3020 failing to make a concerted push beyond two and a half week lows as investors appear reluctant to extend any recovery in the face of uncertainty surrounding Brexit and mixed macroeconomic data sets. Attentions today turn to manufacturing production ahead of year on year inflation, wage growth and retail sales numbers next week, while the pall of global political tensions and the escalating threat that is North Korea plays on wider market flows and drives investors to safe haven assets.   

As Geopolitical risks in North Korea remain at the forefront of investors’ minds, safe haven currencies in the Japanese Yen and Swiss Franc have both seen small favourable movements against G10 currencies. The risk off tone saw USD/JPY at one stage fall below critical support levels of 110.00, reaching its lowest level since June 15 of 1.0957, eventually recovering to 1.0990 in early morning trade. A brief rally on the greenback, despite no clear reasons during early North American trading saw the EUR/USD dipped to a weekly low of 1.1690. Losses were all but erased late in the day as the cross rebounded to a high of 117.60 on close. Markets get a fresh round of data from the North American front as Producer Price Index and unemployment claims are released overnight ahead of Inflation figures on Friday.