Daily Currency Update

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RBA to set the tone

Having capitulated versus a rampaging US Dollar last week the bumpy ride continued for the Australian dollar yesterday which succumbed to selling pressures on approaches towards the 0.7580 mark. Providing some support early in the piece, numbers from China yesterday showed manufacturing conditions had slightly eased in April.

Whilst ongoing fears of trade battles between two of the world’s largest economics, The United States and China continue to sit front and centre of investor’s mindsets, slowing export order growth last month still wasn’t enough to signal a broader contraction in the metric which is closely tied to a barometer of underlying business conditions.

In moving into the first day of the new month, the economic calendar remains littered with top-tier macro events with The Reserve Bank of Australia kick starting proceedings today. Despite the fact policy makers are widely expect to retain the official cash rate, at a record low of 1.5 percent for a 19th consecutive month, market participants are bracing for higher liquidity through-out the course of today’s session. Opening in a softer position versus the Greenback at a rate of 0.7533, the AUD is equally well supported this morning versus both the Kiwi (1.7025) and the Sterling (0.5470).

The New Zealand Dollar continued its decline overnight as we look to test December ’17 lows. Opening the week just under the 0.71 cent handle against the USD dollar, the Kiwi was hindered mid-morning after the release of ANZ Business confidence levels. A net reading of 23% of all businesses in New Zealand were discouraged about the year ahead for the local economy. The biggest dip was the construction sector whereby the residential intentions dropped from +33% to +9%. The intraday low hit 0.7065 shortly after the release before a solid rally at the close of business all losses paired in a meagre 25 point range for the domestic session. Unfortunately there was no such recovery in overnight markets as the US dollar run continued its bullish canter. The New Zealand dollar hit an eventual low overnight of 0.7030 in the North American session and opens this morning at 0.7035 as we await the latest Building consents figures.

The Great British Pound fell to a two-month low of 1.3713 on Monday afternoon against its US counterpart as concerns around government instability in the wake of Amber Rudd’s resignation compounded the effects of disappointing GDP data published last week (UK GDP grew by just 0.1 per cent in the first three months of the year). The GBP/USD pair is currently trading at 1.3765 retaining its bearish stance. We now expect support to hold on moves approaching 1.3710 while any upward push will likely meet resistance around 1.3785. In March we saw the GBP/USD pair reach a monthly low of 1.3711, which alongside with Monday's low, we could see that support tested in the upcoming sessions. Looking ahead today, the UK will see the release of the April Markit Manufacturing PMI, expected at 54.8 from the previous 55.1.

The USD remained well demanded on Monday session, gaining more than 0.30% against a basket of major currencies, with April closing as its best month since Nov 2016. The USD benefited from a risk-off environment amid reports signaling Beijing won’t discuss some of Washington’s demands on trade. While the USD remained firmly bullish towards the end of the US session, US Equity Indexes and US treasuries failed to hold in positive territory.

The USD is now approaching the year to date highs reached on January, which could act as pivotal levels, that if broken to the upside, should fuel further short-term strength. In relation to the data released on Monday, U.S. personal income came slightly lower than expected (0.3% vs. estimate of 0.4%) while personal spending and PCE came in line with expectations.

Going forward, traders will pay attention to the Economic data calendar for the rest of the week, with important Production and Employment economic reports, a Federal Reserve rate decision and the quarterly refunding announcement expected in the next couple of days.

EURUSD fell 0.4% overnight, weighed down by weaker than expected German and Italian inflation economic releases and political concerns after Italy’s Five Star head called for new elections in June.

The currency traded on a relatively tight range between 1.2065 and 1.2139, closing the day on the lower end of the range around 1.2080. In terms of technical levels, expect the last April high at 1.2135 to act as short-term resistance while the Jan. 12 low at 1.2031 should provide support on the downside.

The Eurozone will release important GDP data tomorrow and inflation data on May 3rd.

The Canadian Dollar closed the day slightly weaker, even as oil prices rallied across the board amid declarations by Israeli Prime Minister Netanyahu that Iran hid a secret nuclear program. The loonie was able to raise against all other currencies except the USD and yen, staying within a tight range between 1.2821 and 1.29 that has been sustained over the past five trading days.

Markets will be awaiting the Bank of Canada Governor speech on Tuesday, which will address Canadian household debt levels, that some argue are one of the main reasons the central bank has been reluctant to raise rates further this year.

Next levels to watch outside the recent ranges for the USDCAD will be April 24th low around 1.2813, which should act as a short-term Support and we have April 2nd high at 1.2944, identified as a short term Resistance after the current top around 1.29.