Daily Currency Update

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Is the Australian dollar risk lead run over?

AUD - Australian Dollar

The Australian dollar tracked sideways through much of Monday, bouncing between support and resistance as investors continue to grapple with short term COVID headwinds. Having touched intraday lows at 0.7605 the AUD crept higher through the domestic session touching highs at 0.7662 before drifting back toward intraday lows overnight amid broader US dollar gains. While Equity markets rebounded, recouping losses suffered in the wake of the GameStop saga a shift in correlation between equity market volatility and currency market movements meant the AUD failed to capitalise on gains, instead forced lower by concerns vaccine rollouts will be delayed and US fiscal stimulus will be diluted. Having bounced off lows the AUD currently buys 0.7621 US cents and while the shift below 0.77 wasn’t necessarily driven by a shift in expectations surrounding AUD fundamentals cracks are beginning to form in the broader risk narrative. Uncertainty across both the domestic and global economy remains high. The pandemic shows little sign of slowing through Q1 as vaccine rollouts present new logistical issues and the timeline to effective community protection extends into H2 and Q4. While community transmission remains low, significant community immunisation is unlikely before October meaning stop start restrictions and closure of international boarders will remain in place through much of 2021. Our attentions today turn to the RBA policy meeting. We expect policy makers will maintain the current platform of accommodative monetary policy. While domestic fundamentals continue to improve the RBA will be reluctant to remove supports to early and risk destabilising the recovery. We anticipate the AUD will continue to trade between 0.7580 and 0.77 through much of the week ahead with a keen focus on the broader risk narrative as a marker for a shift outside this range.

Key Movers

The US dollar led gains across currency markets advancing against all major currency counterparts propelling the Dollar Index toward its highest close in nearly two months. Faltering risk appetite and a correction in demand for the Euro and GBP helped drive US dollar gains. The Euro led declines as concerns the continents vaccine roll-out is falling further behind both the US and UK weighed on market sentiment and expectations the common market will enjoy a swift H2 rebound. With domestic data sets softening a break below 1.20 could eventuate in the weeks ahead.

Expected Ranges

AUD/USD: 0.7580 - 0.7720 ▼

AUD/EUR: 0.6270 - 0.6390 ▲

GBP/AUD: 1.7720 - 1.8080 ▼

AUD/NZD: 1.0620 - 1.0730 ▲

AUD/CAD: 0.9730 - 0.9850 ▲