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Aussie vulnerable as contagion spreads and attentions turn to RBA policy announcement

AUD - Australian Dollar

The Australian dollar offered little to excite investors through trade on Monday, failing to capitalise on an upswing in risk sentiment and promises from China’s central bank to underpin the economy in a bid to ease the economic burden. With markets reopening for the first time after the Chinese New Year, investors looked to play catch hammering equities and the Yuan alike. The PBoC then stepped in announcing an injection of liquidity and broader monetary policy supports across the economy. Having touched year to date lows at 0.6883 the AUD remained largely range bound, struggling to make a meaningful break back above 0.67. With such a heavy exposure to China we can expect demand for the AUD to remain subdued until there is a clear improvement in Coronavirus management.

Attentions today turn to the RBA and its first policy meeting for 2020. With the majority of analyst expecting the RBA to maintain its current policy setting we expect little impact to broader AUD values. That said, policy setters may be inclined to cut rates in a bid to get ahead of any economic slowdown caused by the impacts of the coronavirus. While the likelihood of such a move remains low, a surprise cut would force the AUD below supports at 0.6680 and prompt a run toward 0.6630/0.66.

Key Movers

The US Dollar advanced through trade on Monday, recouping losses suffered against safe haven counterparts, the Yen and Swiss Franc, as tensions over the economic impact of the coronavirus eased and domestic manufacturing data showed a surprise uptick through January. Advancing three tenths of one percent against both haven assets the dollar also forced the Euro back below 1.1050 while the Great British Pound suffered a heavy sell off as fears a hard break from Europe was still in play. Advancing 0.4% the dollar index opens this morning at 97.84

The Great British Pound lost 200 points through trade on Monday and was the worst performer when compared with its major counterparts. Fears Britain will fail to secure a favourable trade deal with Europe before the end of the 11 month transition period escalated on Monday after Prime Minister Johnson adopted a tough and hard lined tone when laying out his plan for future relations. Falling through 1.31 and 1.30 Sterling opens this morning at 1.2990. Attentions now remain squarely affixed to trade discussion with headline updates expected to drive direction as investors and businesses try to position themselves.

The Chinese Yuan touched seven-week lows through early trade on Monday before pairing losses and recouping some lost ground as investors and markets found a renewed appetite for risk. Efforts from Chinese health officials to contain the virus and moves from the Peoples Bank of China to stabilise the economy and minimise the expected economic impact bolstered market sentiment. Having lowered interest rates on reverse purchase agreements and promised to implement a variety of monetary policy tools to ensure the economy remains liquid China’s Central Bank has actively eased market concerns. That said the state of the virus and the spread of the contagion remains unchanged and until a vaccine is available or the virus is contained we expect market sentiment will continue to see saw.

Expected Ranges

AUD/USD: 0.6630 - 0.6730 ▼

AUD/EUR: 0.5990 - 0.6130 ▲

GBP/AUD: 1.9080 - 1.9730 ▼

AUD/NZD: 1.0290 - 1.0430 ▲

AUD/CAD: 0.8830 - 0.8930 ▲