Daily Currency Update

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AUD holds firm in face of sustained risk off move

AUD - Australian Dollar

The Australian Dollar edged upward through trade on Monday, outperforming despite a sustained dip in demand for risk sentiment. Having touched intraday lows below 0.6380 the AUD clawed its way back above 0.64 US cents as short term technical supports helped foster a run toward highs at 0.6432. As tensions between the US and China continue to escalate, increasing volatility across FX markets leaves the AUD vulnerable to additional downward corrections as investors become increasingly conservative prompting a shift in flows toward haven assets.

Attentions today turn to ABS payroll data and the RBA rate call and accompanying statement. Payroll data is expected to show further job losses through April, albeit a reduction in the 6% fall a fortnight ago while the RBA is expected to leave rates on hold and maintain its current QE platform with investors seeking forward guidance on RBA policy ahead of Fridays Quarterly Monetary Policy Statement. A shock to the downside in payroll data will likely see AUD test support at 0.6380/0.64 and open the door to another risk off run toward 0.62 while a cautiously optimistic RBA could prompt heightened AUD demand on expectations of a widening yield advantage.

Key Movers

The US dollar advance continued through trade on Monday as softness across equity markets and escalating tensions between the US and China pushed investors toward haven assets. Comments from US secretary of State, Mike Pompeo, prompted an escalation in geopolitical tensions as the US looks to portion blame for the Coronavirus outbreak squarely on China’s shoulders. Pompeo suggested there was “a significant amount of evidence” tying the outbreak to laboratory in Wuhan, intensifying fears US will look to economic measures in retaliation. There is a suggestion Trump and the Whitehouse will seek to impose wider reaching Tariff on Chinese exports or cancel payments on US treasuries owned by China. Either way the swelling hostilities are only serving to add to increased uncertainty and volatility across FX markets, bolstering demand for the USD, JPY and CHF. The dollar index is up three tenths of a percent to 99.53.

The Euro and GBP both gave up gains against the USD as investors unwind April gains safeguarding haven flows and extending USD shorts.

Attentions today turn to US services data and a German constitutional Court Ruling which will determine if the country is bound to participate in QE programs set out by the ECB. While the court is unlikely to rule against the European Central Bank a surprise judgement will send shockwaves across Europe as the potency of monetary policy tools suffers a significant shock and Europe’s ability to climb out of this crisis is significantly hampered.

Expected Ranges

AUD/USD: 0.6200 - 0.6480 ▼

AUD/EUR: 0.5780 - 0.6030 ▲

GBP/AUD: 1.9230 - 1.9580 ▼

AUD/NZD: 1.0580 - 1.0680 ▲

AUD/CAD: 0.8980 - 0.9120 ▲