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Aussies post RBA rally unwound by deteriorating US-China trade hopes

AUD - Australian Dollar

The Australian dollar is stronger this morning when valued against the Greenback. The AUD/USD pair reached a weekly high 0.7047 following Reserve Bank of Australia's (RBA) decision to keep rates on hold at 1.5%, although the gains were limited by a souring in risk appetite as US-Sino trade concerns intensified. The RBA has kept its cash rate at a record low of 1.5% for 30th consecutive months, despite speculation policymakers will go for an interest rate cut. The market is now pricing in two rate cuts before year end, with the August meeting well-priced for a cut.

On the release front yesterday Retail Sales for the month of March was up by 0.3% (MoM), better than the 0.2% expected. Trade Balance data also for the month of March printed a surplus of 4,949M, also surpassing the market's forecast. Finally yesterday we saw the release of AIG Performance of Construction Index which came in at 42 for the month of April, declining from 45.6 in March. There are no scheduled releases today in Australia.

From a technical perspective, the AUD/USD pair is currently trading at 0.7011. We continue to expect support to hold on moves approaching 0.6990 while now any upward push will likely meet resistance around 0.7050.

Key Movers

The US dollar advance continued through trade on Tuesday as US-China trade tensions fostered an appetite for haven assets and forced markets to adopt a risk off focus. Optimism surrounding a resolution to trade tensions have deteriorated this week following confirmation from President Trump that Tariff’s will be increased at the end of the month is a deal is not reached. Talks appear to have stalled with no clear resolution in sight, a dramatic turn around as most analyst were pricing in a “done deal”. Headline risk will play a crucial role in shaping short- and medium-term direction and as discussion progress diminishing risk appetite will hit risk assets hard.

Sterling lost support through trade on Tuesday as the likely cross party solutions met an impasse as talks between the Labour party and Conservatives stalled. The likelihood of a second referendum is rising and until a clear path forward is available we expect Sterling will remain range bound.

Expected Ranges

AUD/USD: 0.6960 - 0.7050 ▲

AUD/EUR: 0.6210 - 0.6310 ▲

GBP/AUD: 1.8550 - 1.8750 ▼

AUD/NZD: 1.0550 - 1.0680 ▲

AUD/CAD: 0.9380 - 0.9480 ▲