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Door opens for short term AUD upside as US funding pressures ease

AUD - Australian Dollar

The Australian dollar edged lower through trade on Tuesday, under-performing as investors adjusted month and quarter end positions, propping up the USD. Having touched intraday highs at 0.6209, the AUD suffered a modest depreciation falling below 0.61 before creeping higher into this mornings open. Despite a slew of fiscal and monetary policy stimulus measures financial and currency markets remained large stable as volatility eased, with some measures of fluctuation falling to their lowest level in 21 days. That said, as the coronavirus continues to spread and USD funding remains fragile, we anticipate broader volatility and price action across currency markets will remain elevated for some time yet, leaving the AUD vulnerable to another bout of downside pressure.

Attentions remain squarely affixed to developments in the fight against the coronavirus as central banks and governments continue to implement new stimulus measures. The Federal Reserve’s new platform has been engineered to ease the liquidity crunch and improve funding for foreign central banks as swap lines are stretched. Overnight Indexed swap yields remain elevated highlighting the pressure currently enveloping the market and capping AUD gains through the short term. With prices expected to contract through the month ahead and yields normalise the cost of borrowing USD should fall opening the door to a broader USD correction and AUD upside.

Watch resistance on moves approaching 0.62/0.6210 and mild support on dips below 0.61 and 0.60

Key Movers

The US Dollar crept higher through trade on Tuesday, advancing against most major counterpart as investors adjusted end of month and quarter positions. The dollar closed the first three months of the year as the best performer among majors up some 2.8% while oil and commodity led currency were the biggest looser with the Norwegian Kroner leading pack, having lost almost a 5th of its value, a move directly in correlation with the tumbling oil price. USD upside through Tuesday was capped however as the Fed announced further measure to ease funding pressures. A new program, dubbed the FIMA Repo Facility, has been engineered to improved dollar funding for other central banks. The new platform allows central banks to swap treasuries for overnight USD loans in a bid to further ease liquidity strains and free up capital to drive growth and enhance stability across the global economy. With cash becoming more readily available the dollar will likely struggle to extend its recent upturn through the short term as markets adjust positions and risk sentiment improves.

The Euro opens at 1.1034 having slipped below 1.09 overnight, while the yen remains largely unchanged and the Pound edged higher, pushing through 1.24. Attentions remain affixed to ongoing coronavirus headlines with risk demand driving direction.

Expected Ranges

AUD/USD: 0.5980 - 0.6210 ▼

AUD/EUR: 0.5480 - 0.5640 ▼

GBP/AUD: 1.9825 - 2.0520 ▲

AUD/NZD: 1.0130 - 1.0380 ▲

AUD/CAD: 0.8530 - 0.8820 ▼