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Aussie retreats amid heightened tensions in a risk-off environment

AUD - Australian Dollar

The Australian Dollar showed some resilience first half of last week and traders began to think the Aussie might just break out to the upside. Unfortunately selling pressure on the back of tensions between the US and China created a more risk averse mood dragging the AUD/USD with it. Friday’s day of trade wasn’t any different, in the absence of local economic data we saw an open at 0.6560, a high of 0.6572 in the early Asian session and then a pull lower late on Friday night to 0.6505.

Given the rising tension between Trump and China, the Aussie is vulnerable and overly sensitive to economic movement. Not only is the Australian dollar risk sensitive, it is also considered a proxy for China, its largest trading partner. Looking ahead there are no scheduled releases locally today, in fact it’s a quiet day all round with the US and UK observing bank holidays. From a technical viewpoint, support is situated at 0.6494 which marks the 100DMA, a break below next line of support sits at 0.6450. On the top side first line of resistance awaits at 0.6600 followed by 0.6660.

Key Movers

On Friday, the Bank of Japan announced that it will extend the term of loans for the lending scheme aimed at combating the coronavirus fallout to 6 months from 3 months. However, the BoJ kept its policy unchanged at -0.1% as expected. The BoJ Governor noted that the economic recovery would likely be a “V” shaped recovery. The USD/JPY rate was little changed and is bouncing around 107.57.

After a strong start early last week, the GBP/USD exchange rate has reversed lower following weak Retail Sales numbers. Figures from the Office for National Statistics reported an 18.1% drop in sales for the month of April vs an expected 15.8% which dragged the pair down towards 1.2160. Further to this, the sterling is weighed by a stronger Greenback which is benefiting from a decline in risk sentiment.

Meanwhile, the ECB’s Monetary Policy Meeting Accounts showed that the Governing Council could adjust the Pandemic Emergency Purchase Programme (PEPP) and other tools at the June meeting. The bank is “fully prepared” to step up its bond-buying programme to support the eurozone economy, which is heading for its worst postwar recession, by adding at least an extra €500bn to its asset-purchase plans at its next monetary policy meeting on June 4. EUR/USD is buying 1.0898.

Expected Ranges

AUD/USD: 0.6450 - 0.6600 ▼

AUD/EUR: 0.5940 - 0.6040 ▼

GBP/AUD: 1.8410 - 1.8970 ▼

AUD/NZD: 1.0620 - 1.0780 ▼

AUD/CAD: 0.9060 - 0.9220 ▼