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AUD shrugs off dovish RBA, Buoyed by US weakness and Yuan gains

AUD - Australian Dollar

The Australian Dollar crept higher through trade on Wednesday, breaking back above 0.71 US cents amid broad US dollar weakness. Optimism surrounding US fiscal stimulus support has helped the AUD reverse losses suffered in the wake of Tuesday’s dovish RBA minutes while sustained CNY strength has helped underpin the uptick. China has been a bench market for the world as its economy has bounced back strongly despite the initial COVID-19 shock. While the PBOC as tried to intervene and force the currency lower the availability of higher yields and ongoing economic out performance continue to drive gains, marking fresh two year highs with the USD falling to 6.65 down from 7.16 at the height of the pandemic. Having touched intraday highs at 0.7140 the AUD has drifted marginally lower into this morning’s open. Direction through the rest of the week will be dominated by evolving US stimulus talks. If an agreement can be reached in time to pass a bill before the election the AUD could test the top end of recent ranges, while a break down in talks will likely ensure the AUD remains stuck between 0.70 and 0.7230 into November.

Key Movers

The US dollar fell through trade on Wednesday, forced toward a 7-week low amid hopes a fiscal stimulus relief bill may still be passed before the election. Headlines continue to dominate direction and while Tuesday’s self-imposed deadline has passed comments from Nancy Pelosi prompted a surge in optimism overnight. The House speaker suggested if a deal could be struck before the weekend there was still time to pass a bill before the election. While there is still some gap between Senate Republicans and Democrats Pelosi and Treasury Secretary Mnuchin remain confident a compromise will be reached. The questions now is not a matter of “if” a fiscal stimulus bill will be passed but “when”. The Dollar index was down 0.6% testing a break below 92 and marking its lowest level since early September. The downturn could have been worse too, with the world's base currency buoyed by a steep CAD depreciation. The Canadian dollar lost half a percent after oil prices plunged 4% following an uptick in inventories and a downturn in consumption as the pandemic tightens its grip on the US economic recovery.

The Great British Pound was the strongest of the majors, advancing nearly 2% amid US dollar weakness and hopes a last-minute UK/EU trade deal will be struck as talks resume. Chief EU negotiator Michael Barnier suggested a pact was within reach if both sides could come together in the true spirit of compromise. The two parties have agreed to a final round of intensive talks expected to last three weeks in a bid to resolve key sticking points and reach an agreement. With hopes a hard Brexit will be avoided Sterling surged through 1.30 and 1.31 to touch intraday highs at 1.3165. Focus remains squarely affixed to the evolving Brexit narrative with at least a partial deal prompting GBP upside into the end of the year.

Expected Ranges

AUD/USD: 0.7020 - 0.7230 ▲

AUD/EUR: 0.5950 - 0.6030 ▲

GBP/AUD: 1.8180 - 1.8620 ▲

AUD/NZD: 1.0650 - 1.0730 ▼

AUD/CAD: 0.9250 - 0.9420 ▲