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Aussie recovers ahead of all-important RBA rate decision

AUD - Australian Dollar

President Trump threw markets into disarray on Monday as the US-China trade reconciliation appears to be on life support. Stating that tariffs will increase to 25% from 10% on $200 billion worth of goods, President Trump accused China of backpedalling on a number of key commitments and sent markets into risk-averse territory. While some analysts suspect the announcement was a bluff from the President, trade sensitive markets and currencies retreated nevertheless with the Aussie no exception. The Australian Dollar plunged precipitously on the news and started the new week severely out of favour at an undesirable fresh 2019 low of 0.6968. It wasn’t an entirely poor day for the Australian Dollar however and it recovered admirably throughout the session to open this morning at 0.6985 after briefly breaking 0.7 earlier in the American session.

The Australian Dollar now turns to an eventful Tuesday for direction with a number of domestic announcements set for release. Of key importance is the RBA rate decision which currently sits at an almost 50/50 split (based on the interbank cash rate futures market) on whether the RBA will cut rates to 1.25%. Earlier in the day however is a retail sales reading and Australia’s trade balance as well. Overall, the Aussie remains under pressure with all eyes on the RBA.

Key Movers

Markets opened this week suffering under the spectre of President Trumps announcements after stating that tariffs will increase to 25% from 10% on $200 billion worth of goods on Friday. Risk assets understandable retreated on the news across the globe with S&P futures down almost 2% and the S&P 500 down almost 1.6% at one point. China’s CSI300 fell 5.8% with the Chinese Yuan falling 1% at one point but has since recovered most of these losses. Commodity prices were also generally softer with crude oil leading the way lower, down by more than 3% which has also, since recovered. Despite the strong language from the President, China has been mostly tight-lipped with only a perfunctory confirmation that China still plans to send a delegation this week for the next round of talks.

From a currency perspective risk aligned currencies enjoyed today’s dubious distinction of being key movers with the Kiwi falling 0.6% from last weeks close to be the weakest of the majors. While there was some small recovery the Aussie enjoyed a much more fruitful movement upwards which led it out of being the worst performer. In Europe, the Sterling looks to have softened slightly as optimism that both major parties will come to an agreement on Brexit starts to unravel.

Expected Ranges

AUD/CAD: 0.9363 - 0.9489 ▼

AUD/EUR: 0.6203 - 0.6308 ▼

AUD/GBP: 0.5286 - 0.5434 ▼

AUD/NZD: 1.0411 - 1.0571 ▼

AUD/USD: 0.6951 - 0.7080 ▼