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Aussie higher on improved risk sentiment

By OFX

The Australian Dollar has managed to hold above 73c vs the U.S Dollar amid an interview between President Trump and Reuters. In an exclusive, he said that he has “no time frame” for ending the trade dispute with China and also expressed his disappointment with the recent Federal Reserve hikes saying he wasn’t “thrilled” with the Fed Chairman Powell. With an improvement in risk appetite, the Greenback along with US bond yields fell aiding the Aussie recovery to touch a high of 0.7344.

Looking ahead, RBA minutes and a speech by Governor Philip Lowe are the main risk events this morning. There is unlikely to be any change in their message where the RBA expects a slow shift towards full-time employment and a rise in inflation. Any moves by the RBA will likely be a rise but not for some time still.

It was a quiet day on the currency front as the New Zealand Dollar traded in a tight range after opening the local session at 0.6640 against the US Dollar. The Kiwi drifted to eventual intraday lows of 0.6612 after failing to capitalise any momentum from Fridays gains.

The Kiwi received a boost overnight as equity markets saw a slight move higher as calm has been restored in the short term for Turkey, emerging markets and trade talks between United States and China.

Furthermore, President Donald Trump overnight stated that he disagrees with the Federal Reserve’s decision to raise interest rates and said he should be given some more help by the Fed. The remarks caused a sell off for the Greenback overnight and the Kiwi rallied through to the morning open after an overnight high of 0.6650 before meeting resistance.

Only the lower tiered visitor arrivals & credit card spending data is scheduled for released today before we look forward to this evenings latest Global Dairy Trade Auction reading.

The New Zealand Dollar opens this morning at 0.6645.

The Great British pound crept upward through trade on Monday pushing back through 1.2750 and testing resistance at 1.28. In the absence of any major data sets or Brexit news Sterling found upside momentum following comments from US President Donald Trump wherein he criticised the FOMC and Federal Reserve for raising interest rates.

The President openly opined Fed President Jerome Powell’s path to tighter monetary policy suggesting “I’m not thrilled with his raising of interest rates”. It is the 2nd time through the last two months Trump has openly criticized the Fed adding to short term downward pressure on the USD. While Sterling took advantage of the dollar’s downturn upside support remains stretched with the UK openly vulnerable to broader Brexit weakness. The GBP has suffered consecutively weekly depreciations through the last six weeks and touched 14 month lows last Wednesday. Marking a 12% depreciation through the 4 months since April.

While the GBP has found some support through the last 3 sessions value remains hamstrung by broader Brexit expectations and we anticipate increasing volatility through the next 6 weeks leading into the next round of EU negotiations.

The Greenback started the day with a positive tone posting modest advances against its major rivals. However, the US Dollar lost some of that early momentum on the back of comments from both US President Donald Trump and Federal Reserve member Raphael Bostic on current US monetary policies. The President reiterated that he disagrees with Federal Reserve’s decision to raise interest rates so quickly, and that it may backfire. Trump told Reuters that he was “not thrilled” by Chairman Jerome Powell’s decision to raise interest rates and would continue to criticise the Federal Reserve if interest rate hikes continued.

On the data front there were no relevant macroeconomic news yesterday from the US. The calendar will remain light also Tuesday, with focus then on US-China trade talks.

From a technical perspective, the EUR/USD pair rallied to a high of 1.1491, its highest in over a week. The USD/JPY pair traded as low as 110.00 on the back easing Treasury yields and comments made by Donald Trump on monetary policy. The Aussie Dollar surged to its highest level yesterday since August 10, reaching a 24-hour high of 0.7344. All eyes today will be on the Reserve Bank of Australia minutes of its August meeting.

The Euro extended its early week gains, opening this morning at 1.1490 despite fresh concerns from Italy. The catalyst for the shift upwards was attributable mostly to USD weakness after US President Trump and FOMC Member Bostic both commented on the economy. Nevertheless, the Euro finds itself at its highest point in over a week.

The Euro traded within a tight 30-pip range for much of Monday with little to drive momentum on the economic calendar. However, the market did start to heat up after the Italians took the spotlight. After the tragic Genova bridge collapse the Italian government wants to spend €80 billion on infrastructure. The move however would breach EU budgetary rules, potentially outlining a conflict with the wider union. The Euro shed some of its earlier gains and was whittled lower against the Greenback as investors took the news from Italy poorly.

Fortunes shifted decidedly however after President Trump and the FOMC’s Bostic commented on the economy. President Trump began the proceedings, complaining again about the Fed’s monetary policy decisions. The highlight was his remarks that he expected Powell to be “a cheap-money Fed Chairman” and that he is “…not thrilled with his raising of interest rates”. Bostic however, mentioned that the economy did not need further stimulus but there are concerns over the flattening yield curve. The market interpreted these comments as mostly dovish and the USD fell across the board, driving its counterparts higher, including the Euro.

Moving forward into the week, the domestic economic calendar remains light with the focus squarely placed on on-going US-China trade talks that is slated to start today.

The Loonie raced to 10-day highs overnight as rising oil prices and US president Trump said he was at odds with the US Fed’s decision to raise interest rates. The broad-based USD weakness saw the USD/CAD fall from highs of 1.3094 to the 10-day low of 1.3045 where we open this morning Sydney time.

Although markets are still wary of the headline risk to the CAD, domestic interest rate expectations continue to firm after markets absorbed Fridays stronger than expected July CPI read. In light of the narrowing yield spreads and price action overnight, new levels USD/CAD levels to watch are 1.3120 on the upside with the 1.3000 handle still a key level of support on the downside.

As discussed yesterday, traders will be looking forward to domestic data sets in the form of June retails sales which are due out Monday for further evidence of strength in the domestic economy. A strong number could push USD/CAD through the key 1.3000 handle leading into BOC governor Poloz speech on Sunday.