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AUD falters as demand for risk subsides

AUD - Australian Dollar

The Australian dollar edged lower overnight amidst a souring in demand for risk assets, following equities lower while toying with a break back below 0.65. Softness across a raft of macroeconomic indicators and a pessimistic outlook painted by European Central Bank President Christine Lagarde prompted markets to adopt a more conservative tone leading into month end, resulting in a broader correction across commodity led and emerging market currencies. Having touched intraday highs at 0.6570, the AUD succumbed to selling pressures driven through 0.65 to session lows at 0.6493, before creeping higher into this morning’s open.

Having enjoyed strong gains throughout the last week and a relatively swift rebound off near 20-year lows touched in March, yesterday’s correction highlights the AUD’s vulnerability to shifting risk sentiment. While month end rebalancing and profit taking compounded overnight moves, the marginal correction in risk appetite prompted an immediate correction in AUD attractiveness. While we still see potential for a continuance of the current bullish upturn, it is heavily reliant on the maintenance of risk demand and improving market optimism. Attentions remain squarely affixed to broader risk flows with resistance forming on moves approaching 0.6570/80 and 0.66.

Key Movers

The US dollar enjoyed mixed fortunes through trade on Thursday, advancing against risk assets while giving up gains against the euro and GBP. The euro jumped through 1.09 and 1.0950 to touch session highs at 1.0965 after the European Central Bank announced it would lower bank lending rates in bid to prompt growth amidst the COVID-19 fallout, while disappointing those investors looking for an extension in the current QE platform. Some market participants were pricing in an extended bond purchase facility, suggesting the ECB would begin to include junk bonds in its monthly bond buying scheme. With President Lagarde offering little on top of the current program, markets were forced to correct euro positions prompting a short-term bounce in the wake of the policy meeting.

The Great British pound followed the euro higher, pushing through 1.26 to touch highs at 1.2605 before edging lower into the start of the Australasian trading day. Sterling remains heavily linked to broader risk trends and with the UK still some way off loosening lockdown restrictions as the country struggles to contain the COVID-19 outbreak, there are headwinds preventing extended upside through the short and medium term. Europe is beginning to ease restrictions as the devastation caused by the coronavirus outbreak is abating, leaving the UK behind as lockdown measures are expected to remain in play for at least another week.

Attentions remain squarely affixed to developments in risk demand leading into the weekly close.

Expected Ranges

AUD/USD: 0.6380 - 0.6570 ▼

AUD/EUR: 0.5830 - 0.6050 ▼

GBP/AUD: 1.9020 - 1.9580 ▲

AUD/NZD: 1.0580 - 1.0720 ▼

AUD/CAD: 0.9030 - 0.9120 ▼