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Australian dollar reaches two month highs

AUD - Australian Dollar

The Australian Dollar reached a two-month high overnight of 0.7039 as US equities spurred on markets globally. The local currency initially traded in a fairly muted range during the domestic session on Wednesday following the decision by the Reserve Bank of Australia to cut interest rates to an all-time low of 1% on Tuesday. Opening the morning at 0.6993, the Aussie barely moved following the release of building approvals for the month of May, rising by 0.7% fuelled by private sector apartment growth in both NSW and Victoria.

Trade Balance figures were impressive, recording a $5.75bn surplus during May and an all-time high. The main driver was a surge in commodity prices, in particular gold and natural gas as exports recorded a 4% growth to $41bn. As trade tensions continue to linger, it is a timely reminder that the Chinese economy is an important relationship to Australia with exports continuing to rise by 33% y/y into the world’s second largest economy.

The Australian dollar in the short term will see support at the 70 US cent level ahead of Australian retail sales this morning, with expectations of a 0.2% rise for the month of May. From a technical perspective, the AUD/USD pair is currently trading at 0.7032. We continue to expect support to hold on moves approaching 70 US cents while now any upward push will likely meet resistance at April’s high of 0.7060.

Key Movers

Gains on equity markets globally were the main catalyst for an improvement in risk appetite overnight. Main gains were on higher yielding currencies such as the AUD and NZD as the US Dollar index (DXY) finished flat for the day.

ADP non-farm payrolls missed its mark coming in at 104,000 jobs added in the private sector. Well below forecasts of 140,000 jobs heading into the 4th of July holiday celebrations, liquidity in the markets is expected to thin out into the weekend. As market expectations rise for the Federal Reserve to start cutting rates as early as July's meeting, ISM non-manufacturing data fell well short of its expectation and its lowest reading since 2017, causing the greenback to edge slightly lower on release.

The US Dollar in general was lower against commodity-based currencies with slight gains seen against the EUR and Sterling. With a lack of data scheduled for released on Thursday, it is expected that further moves on currency markets will be largely dictated by the release of Non-Farm payroll figures on Friday evening.

Expected Ranges

AUD/USD: 0.6960 - 0.7080 ▲

GBP/AUD: 1.7600 - 1.8100 ▼

AUD/NZD: 1.0450 - 1.0550 ▲

AUD/EUR: 0.6200 - 0.6300 ▲

AUD/CAD: 0.9150 - 0.9250 ▲