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AUD finally succumbs to this week's risk-off undercurrent

AUD - Australian Dollar

Risk-off remains the underlying narrative this week and currency markets finally caught up with the sell-off across equities and other risk assets, prompting a sharp downward correction for the Australian Dollar. Having touched intraday highs at 0.7160 the AUD suffered a steep and swift sell off overnight. COVID-19 continues its unchecked spread across Europe and the US, leaving France and Germany little choice but to announce new social restrictions in a bid to curtail the rampant virus. Fears a second and elongated lockdown will derail what little economic recovery we have enjoyed to date prompted investors to dump risk assets and seek safety in haven currencies. The S&P 500 led losses across equity markets, plunging 3.5%, while measures of volatility climbed forcing investors toward the USD and treasuries. The rush toward haven assets forced AUD back below 0.71 toward intraday lows at 0.7040, with key crosses also vulnerable to the correction. The AUD fell across the board, plunging against the EUR, GBP, JPY, CHF and NZD as markets attempt to adjust expectations ahead of a souring global macroeconomic outlook and upcoming easing in RBA monetary policy.

Attentions remain squarely focused on next week's key risk events with pandemic headlines governing direction within short term ranges in the lead up. We expect the AUD will continue to bounce between 0.70 and 0.7180.

Key Movers

The US dollar advanced through trade on Wednesday, buoyed by a sharp correction in risk demand amid a worsening COVID-19 pandemic and US election uncertainty. Germany and France’s commitment to new lock down measures in a bid to curtail the virus scuttled risk demand forcing the common currency back below 1.1750 as implied volatility touched multi-month highs. While investors are withholding big bets until after the US election there is a gathering sense the common currency may be running out of steam. Hopes Europe had seen the worst of the pandemic and were poised for a Q4 recovery have all but evaporated as the virus continues its rampant and devastating spread across the continent. Europe and the US are both locked in a battle against the virus and with few monetary policy tools left to guide the economy through the crisis there are fears the ECB will have to dive deep into the QE tool box in a bid to stimulate growth.

Attentions remain squarely affixed to the evolving pandemic with volatility in the wake of next week's election likely to give us a better indication of direction and value into the end of the year.

Expected Ranges

AUD/USD: 0.7000 - 0.7130 ▼

AUD/EUR: 0.5950 - 0.6070 ▼

GBP/AUD: 1.8180 - 1.8520 ▲

AUD/NZD: 1.058 - 1.0680 ▼

AUD/CAD: 0.9320 - 0.9440 ▼