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Aussie rebound continues as Fed issues emergency rate cut

AUD - Australian Dollar

The Australian Dollar recovery continued through trade on Tuesday, pushing through 0.66 to touch intraday highs at 0.6645. After bouncing of decade lows at 0.6460 through trade on Monday the AUD consolidated moves above 0.65 throughout the domestic session, pushing through 0.6550 despite an RBA rate cut. While markets had broadly priced in no change at the start of the week, reports of a consolidated global monetary policy adjustments in response to the impacts of the coronavirus and comments from Prime Minister Scott Morrison prompted investors to adjust positions and price in a pre-emptive monetary policy move. Investors anticipated the RBA would lower rates by 50 basis points igniting a swift reversal and AUD bounce when the 25-basis point cut was passed through.

The AUD trended higher through the afternoon and into the overnight session jumping through 0.66 after the Federal Reserve announced an emergency out of cycle rate cut of 50 basis points in a bid to stave off the anticipated economic slowdown caused by the spreading coronavirus. The move forced the USD toward 6-week lows as investors scrambled to adjust positions.

Attentions now turn to Q4 GDP analysis with growth forecasts expected to remain flat and risks skewed toward a contraction. The print provides a critical benchmark for economic health as it offers some scale of performance prior to the bushfires and the coronavirus outbreak. A soft read suggests the economy was already struggling and that perhaps further stimulus may be required to absorb the impacts to growth and avoid a recession. Watch resistance on moves toward 0.6650 with supports at recent lows near 0.6460.

Key Movers

The US dollar plunged lower through trade on Tuesday, dropping against a basket of major currency counterparts following the Federal Reserves emergency monetary policy response to the impacts of the coronavirus. Fed President Jerome Powell announced an out of cycle rate cut of 50 basis points in an attempt to combat the risks to economic activity caused by the coronavirus. The FOMC pushed through the policy action ahead of its March 17-18 meeting to ensure maximum employment and price stability are maintained as fear and panic surrounding the pandemic continue to escalate. The Dollar fell to 6-week lows at 96.926 as treasury yields fell below 1%, an historical low. While reports of a global consolidated monetary policy response to the coronavirus circulated through trade on Tuesday the world’s base currency remains vulnerable to further downside through the short term. The Fed has the luxury of adjusting rates again should the economy fail to respond while other major central banks already sit at record lows and as such may be hesitant to ease policy further while the outlook is still so uncertain. The Euro Yen, Swiss Franc and GBP all advanced against the Greenback as attentions turn to other central bank heads, with the Bank of Canada interest rate announcement Thursday perhaps the first benchmark in the global monetary policy response.

Expected Ranges

AUD/USD: .6460 - 0.6650 ▲

AUD/GBP: 0.5840 - 0.5980 ▲

GBP/AUD: 1.9180 - 1.9620 ▼

AUD/NZD: 1.0380 - 1.0520 ▲

AUD/CAD: 0.8730 - 0.8920 ▲