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Aussie works its way above 0.72 ahead of RBA announcement


Markets were relatively quiet with the US on holiday and investors took the opportunity to take profits off the table. Grinding its way above the 0.72 handle, the Aussie opens this morning at 0.7209 after a dismal start to the week which saw the Pair touch its lowest level in 20 months.

The Australian Dollar spent much of Monday below the 0.72 level, bouncing between 0.7164 and 0.7215 for much of the session. The impetus for the declines were poor domestic figures and growing concerns over mortgage rate increase, with the latest salvo from the ABS also hurting the Aussie. M/M Retail Sales was released in Australia on Monday, showing a 0% gain against a forecast of 0.3% growth, a decidedly bearish outcome. The Aussie also felt the impact of disintegrating relations with China and the escalating US-China trade war. Overall, the mix of negative news pushed the Aussie lower.

The Aussie now turns its focus to the RBA policy announcement slated for release at 2:30 this afternoon. While widely expected to be neutral in tone, the key interest for pundits will be whether the RBA will respond to the recent nudge up in mortgage rates from a number of the banks in Australia.

The New Zealand Dollar has moved within a tight range against the U.S dollar but the move was still lower. NZD/USD touched a high of 0.6622 during Asian trade and then began a steady decline on the back of weaker than expected Trade Index. The Statistics New Zealand showed that the Terms of Trade Index improved to 0.6% in the second quarter from -2% in the first quarter but fell short of the market expectation of 1%. The kiwi touched an eventual low of 0.6597 just before the start of Tuesdays session.

Looking ahead at the economic docket we will see the GDT fairy auction take place tonight with an expected increase on the overall price index of about 2%.

On the technical front, we see initial support at 0.6590 and then 0.6545. On the upside, resistance can be seen at 0.6660 followed by 0.6715.

The Great British Pound tumbled against the Euro Monday and was the worst performer across G10 currencies, relinquishing gains hard won last week as Brexit optimism falters. Markets scrambled to unwind last weeks gains as EU Chief Negotiator Michael Barnier sought to clarify comments, suggesting that while he was confident a deal could be struck he has strongly opposed to Britain’s latest proposal. The correction coupled with Domestic political instability, only heightened by former foreign secretary Boris Johnson’s claims the May exit strategy would spell disaster for Britain, raised fresh fears Britain is headed for a hard Brexit.

Falling through 1.29 Sterling touched intraday lows at 1.2852 after Manufacturing PMI printed below expectations. While still expanding the pace of manufacturing growth has certainly slowed raising concerns the broader economy was failing to shrug off a sluggish first half of the year and regain a robust growth outlook.

Attentions now turn to the Bank of England’s Inflation Report Hearings. Investors will be keenly attuned to any signal that might suggests last months rate hike was not a mere one off adjustment, while ongoing Brexit developments govern wider directional shifts.

The US Dollar largely held onto gains enjoyed into last weeks close as a US labour Day holiday ensured thin volumes through much of the day. The worlds base currency-maintained a near one week high against G10 counterparts as trade tensions, highlighted by the break down in NAFTA negotiations, and ongoing emerging market concerns prompted broader US dollar demand.

Investors reacted to comments from President Donald Trump at the weekend wherein he reportedly warned Congress not to meddle with talks to revamp NAFTA as there was no need to keep Canada in the agreement if they failed to cede to US demands. The comments came on the back of a similar rebuke issued on Friday and have dampened any expectation a trilateral trade agreement will be reached in the near term. The break down only adds to an escalation in global trade tensions.

Emerging market concerns also weigh on investors appetite for risk as escalating economic crises in Turkey and Argentina are prompting a flight of capital away from developing economies and back into the USD.

Attentions now turn to ongoing trade talks and key manufacturing data for broader direction through trade on Tuesday.

The holiday in the US saw welcome relief for the Euro as volumes remained thin for much of the Monday session. Opening this morning at 1.1615, the Euro spent much of the session oscillating around the 1.16 level with very little to drive direction as volumes remain low and uncertainty high.

Domestically the main economic release was the August Markit PMI. Ultimately the PMI figures confirmed that manufacturing activity in the EU slowed down with the index posting 54.6, the slowest growth rate since November 2016. The Headlines were also unsupportive for the Fibre with a key breakdown in on-going Brexit negotiations. The EU Chief Negotiator Barnier confirmed that he ‘strongly opposed’ the ‘illegal’ Chequers plan because it sought to unpick the single market. The Sterling swiftly sold off on the back of this news. Within this mix of negative releases, the overall mood is decidedly uncertain as markets wait to see how the on-going US-China trade war develops. Trump is said to be poised to announce another round of $200bn on Chinese goods which would see an unravelling of the current global trade order.

The Euro now turns to a relatively quiet Tuesday on the domestic economic calendar with only the M/M PPI figures to drive direction. Off-shore releases may also affect the Pair however with ISM Manufacturing PMI due to release in the US. Otherwise the focus is squarely placed on the headlines.

The USD/CAD has moved within a tight 30-pip range on Monday mostly due to the fact that markets were closed on Monday who were observing the Labor Day holiday weekend. With no local economic releases for the CAD to take direction from the pair opened at 1.3070, moved 15 pips lower during Asian trade and then touched a high of 1.3103 in the European session.

Looking ahead today we see the release of Manufacturing PMI and more importantly investors will be keenly attuned to tomorrows Bank of Canada monetary policy decision. We are expecting them to hold this month, but we will be watching for clues on a possible October rate hike.

On the technical front, initial support is seen at 1.3050 and the psychological level of 1.3000. on the upside, resistance is around 1.3075 and 1.3165.