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China's one sided trade war not enough to dent AUD upside

AUD - Australian Dollar

Equities and risk assets enjoyed renewed support through trade on Tuesday, recouping losses suffered on Monday as market sentiment rebounded. Optimism a no-deal Brexit will be avoided, hopes a US fiscal stimulus program is just around the corner and reports Moderna’s COVID-19 vaccine will be approved for rollout by the FDA next week all helped bolster risk demand driving gains across key equity markets and dragging the AUD higher, having edged back toward 0.75 US cents throughout the domestic session as markets digested reports. China has formally banned the import of Australian coal; however, the AUD rebounded strongly overnight recouping losses to extend back through 0.7550.

The AUD remains well-supported at present as risk demand, long-run US dollar weakness and commodity prices underpin recent gains. Markets have largely set aside the efforts of China’s one-sided trade war, with no real sustained impact on AUD value evident at this point. However, as tensions continue to escalate and key commodities now in focus this could pose a risk to long run AUD upside. Our attentions today remain with the current drivers behind the risk narrative, and we expect the AUD to maintain the current upturn and bounce between 0.7480 and 0.7590.

Key Movers

The US dollar struggled to make any meaningful headway through trade on Tuesday, continuing to languish near two-year lows amid sustained market optimism a 2021 recovery will be driven by widespread immunisation and fiscal support. The dollar index touched 90.57, only marginally above Monday’s low at 90.419.

The Euro failed to extend significantly beyond 1.2150 marking highs at 1.2165, while the GBP led majors higher, advancing three-quarters of 1 percent amid new hopes an 11th hour Brexit deal will be struck. Reports from the BBC a deal was imminent saw Sterling surge back through 1.34. Having touched intraday day highs at 1.3450 investors appeared reluctant to drive further gains ahead of an official announcement. An end to political posturing and final Brexit agreement will drive GBP gains across the board, potentially forcing the AUD back below 0.55 pence. Our attentions remain squarely affixed to official reports as we move through the last week before the Christmas and New Year holidays.

Expected Ranges

AUD/USD: 0.7480 - 0.7590 ▲

AUD/EUR: 0.6120 - 0.6250 ▲

GBP/AUD: 1.7630 - 1.8020 ▲

AUD/NZD: 1.0580 - 1.0720 ▲

AUD/CAD: 0.9550 - 0.9630 ▼