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AUD shrugs of soft domestic data as USD breaks key trendline

AUD - Australian Dollar

The Australian dollar maintained a narrow trading band through trade on Wednesday despite key event risks crowding the macroeconomic docket. The AUD slipped toward intraday day lows at 0.7730 through the domestic session following a softer than anticipated Q1 inflation print. CPI data showed a surprise softening in price pressures through the three months prior to March 31 prompting investors to roll back any expectation the RBA may be forced to adjust interest rates ahead of schedule in a bid to rein in rising inflation. As government stimulus is rolled back inflation will likely remain subdued through the months ahead as consumer spending patterns normalise. The AUD tracked sideways through the rest of the local session before paring losses in the wake of the Fed and FOMC policy announcement. Jumping back through 0.7750 the AUD climbed back toward resistance at 0.78. The US dollar shifted lower following Fed president Jerome Powell's suggestion that any tapering of bond purchases was still some time off.

The AUD continues to struggle to break outside a narrowing trading band, firmly entrenched between support and resistance. We anticipate volatility will remain low through the immediate short term with the currency set to fluctuate between 0.77 and 0.78 with added support on moves approaching 0.7630 and resistance on forays above 0.7830.

Key Movers

The US dollar moved lower through trade on Wednesday as 10-year treasury yields remained range bound and the Fed held fast to its current monetary policy mandate. The dollar index fell four-tenths of a percent, breaking a key 3-month trendline to touch fresh 2-month lows at 90.57. The Fed’s commitment to maintaining accommodative policy conditions through transitory inflationary pressure was hardly a surprise for investors, yet soured those optimists pricing in a shift in the fed narrative on the back of improved domestic economic performance. The euro broke above 1.21 to touch intraday highs at 1.2130 and now eyes the February high at 1.2184. Momentum is now firmly behind the euro having bounced off the year's early lows. Improving European economic indicators and an improved vaccination schedule have dampened fears the European recovery would fall woefully behind that of the US and UK. Instead, delays to financial support and the ongoing bipartisan divide in the US mean the gap has closed, and we are now eyeing a sustained bull run for the single currency with a break above 1.2185 signalling an extension toward 1.22 and possibly 1.23. Attentions turn now to US GDP data and unemployment claims for direction through Thursday.

Expected Ranges

AUD/USD: 0.7680 - 0.7830 ▲

AUD/EUR: 0.6390 - 0.6510 ▲

GBP/AUD: 1.7820 - 1.8020 ▲

AUD/NZD: 1.0680 - 1.0750 ▼

AUD/CAD: 0.9550 - 0.9640 ▼