Daily Currency Update

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AUD surges on coat tails of Yuan revaluation

AUD - Australian Dollar

The Australian Dollar rallied back through 0.77 US cents Tuesday, pushing through the December 31 high and resistance at 0.7750. Having slipped below 0.7650 in the latter hours of trade on Monday, the AUD regained the upper hand late in the domestic session before rallying strongly overnight and in the lead up to this morning’s open. Having tested resistance at 0.7740/50, the AUD surged upward after China’s central bank, the PBOC, elected to set the official Yuan midpoint value at 6.4760, one percent higher than the previous fix and the largest single adjustment since China moved away from a fix peg valuation in 2005. The Australian Dollar is often seen as proxy to the Yuan, and it certainly benefited from the PBOC’s aggressive correction, advancing to mark fresh highs at 0.7779.

Our attentions turn now to the Georgia State senate run off for near term direction. A democrat win in both races would mean a change in the balance of power and afford democrats control of both the house and senate, a vitally important achievement in this era of partisan politics. With analysts and investors still at odds as to the likely result, we see short term AUD opportunities should US Dollar weakness continue. Watch resistance on approach to 0.78 US cents with a break above this threshold opening the door for sustained upside.

Key Movers

The Dollar recovery didn’t last long with markets shying away from the world’s base currency following policy action from the PBOC and a broader correction in risk demand. Stocks advanced through trade on Tuesday as markets chased risk assets higher following the People’s Bank of China’s adjustment to the Yuan midpoint value. Added pressure came on heels of rising inflation expectations and a jump in oil prices, driving the USD lower against most major counterparts. Having fallen almost half a percent, the Dollar index now sits at levels not seen since April 2018 and appears poised to continue the 7% depreciation suffered though 2020.

The Euro and Japanese Yen both advanced against the dollar while Sterling bounced between 1.3560 and 1.36 before breaking higher leading into this morning’s open. While the GBP has managed to hold onto gains won in the wake of the 11th hour Brexit trade deal rising COVID-19 case numbers and calls for a 3rd nationwide lockdown could curb gains beyond 1.37 in the near term.

Expected Ranges

AUD/USD: 0.7640 - 0.7820 ▲

AUD/EUR: 0.6260 - 0.6350 ▲

GBP/AUD: 1.7380 - 1.7720 ▼

AUD/NZD: 1.0650 - 1.0750 ▲

AUD/CAD: 0.9770 - 0.9890 ▲