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AUD slips further as USD index reaches five-month high

AUD - Australian Dollar

The Australian dollar slipped further overnight as it fell from above 0.76 to 0.7563, a three-month low. The USD strength was despite a modest rise in the S&P500 and negligible changes in bond yields. It was a similar story for the New Zealand dollar which has had a tough week, falling from 0.6980 to 0.6943 which saw the AUD/NZD cross rate trade sideways around the 1.09 handle.

With no major developments overnight to drive markets, the market seemed to continue to bid up the USD and sell down the EUR as concerns of a third wave in the Eurozone remain elevated. Today is also light on the domestic data front with the only notable global releases being Q1 employment data out of New Zealand, UK retail sales and inflation data out of the United States.

Given recent AUD weakness, topside resistance is now seen on approach to 0.7640 whilst first lines of downside support are at the daily low of 0.7560. A break below this support could see the AUD continue its downtrend to psychological support at 0.7500 before the December low of 0.7460.

Key Movers

As we touched on above and throughout the week, the main narrative continuing to drive markets is the strength in the USD. The USD index has managed to climb to five-month highs this week as it capitalises on recovering bond yields and stronger than expected economic data. This also comes as FOMC are downplaying the likelihood of a sharp rise in inflation, easing fears of investors.

The slow pace of the vaccine rollout in Europe, coupled with the heightened fears of a third wave of COVID-19 have weighed on the EUR overnight. EUR/USD fell from 1.1820 to 1.1762, representing a four-month low.

Expected Ranges

AUD/USD: 0.7500 - 0.7640 ▼

AUD/EUR: 0.6400 - 0.6500 ▼

GBP/AUD: 1.7990– 1.8200 ▲

AUD/NZD: 1.0800 - 1.0950 ▲

AUD/CAD: 0.9490 - 0.9600 ▼