Daily Currency Update

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AUD tracks sideways amid a scarce macroeconomic calendar.

By OFX

The Australia Dollar closed marginally lower against its US counterpart, opening this morning at 0.7545. Trading sideways for the majority of Monday, the Aussie oscillated between resistance at 0.7580 and support at 0.7540, with all market participants finding little news to digest. Thinly traded for much of the day due to public holidays in the US and UK, the AUD found itself trading within a tight range.

With a bare macro-economic calendar both domestically and internationally to drive momentum, sentiment provided the initiative with headlines from Europe and the US dominating market attention. At the slightest sign of trouble, investors found their safe haven in the Greenback, forcing it higher against all counterparts despite the public holidays.

The Australian Dollar now enters another day with an empty calendar to look forward to. Traders during the Asian session turn to equity and commodity markets for sentiment with their periphery focused on the headlines from the rest of the world to spark the market. Looking further into the week, Wednesday is a little more interesting with data from the US and NZ to spur the market.

The New Zealand Dollar opened the week at 0.6920 against the US Dollar and traded in a tight band as both public holidays were observed in the United States and United Kingdom. As the 69 US cent handle continues to hold we saw the kiwi edge higher in the domestic session to an intraday top of 0.6958.

The NZD/EUR cross was one of the largest winners overnight, gaining 1% to 0.5980 as European markets opened for the week and yields continued to increase rapidly in Italy. A possible downgrade on review by ratings agency Moody could be on the cards for Italy from its current Baa2 rating as the Kiwi tested yearly highs against the Euro.

The Kiwi remained resilient against the US Dollar in offshore markets as we see another relatively quiet day domestically. A raft of economic data is due to be released starting Wednesday with the RBNZ Stability report released followed by RBNZ Governor Orr due to testify about said report before the Parliament Select Committee in Wellington.

The New Zealand Dollar opens this morning at 0.6940.

The Great British Pound saw little action on Monday with the UK Bank Holiday. The Sterling spent the day in a tight range against the Greenback trading slightly above 1.3300 levels. Looking ahead today the macroeconomic calendar is light.

Market sentiment is dented by Italian and Spanish political headlines which weighs heavily on Pound Sterling. The main highlights of the week will revolve around the US Non-Farm Payroll and wage growth data on Friday.

From a technical perspective, the GBP/USD pair is currently trading at 1.3309. We continue to expect support to hold on moves approaching 1.3270 while now any upward push will likely meet resistance around 1.3330.

It was a public holiday in the US overnight with no major data releases however the US Dollar Index hit tops around 94.50 being fresh 2018 highs. The Index strengthened and started the week on a positive note with renewed optimism over Trumps meeting with North Korean leader, easing fears of a potential US-China trade war and political uncertainty weighing on the Euro. Gold however pulled back as the Dollar rose making it more expensive for buyers holding other currencies.

On the equities front, New York Stock Exchange was open for trade and witnessed a rise in Consumer Services, Consumer Goods and Utilities sectors. At the close both the Dow Jones and the S&P 500 were down 0.24% on the day however, still likely heading for its best May performance since 2009. The Nasdaq finished up 0.13% and by far the outperformer on track for a May return of 5.2%.

Oil prices continues to fall on Monday as OPEC and Russia were reported last week to consider lifting production to meet shortfalls from Iran and Venezuela. US Crude oil futures have dropped nearly 10% to trade around $66.50 per barrel down from around $73 last week. Not all bad news, the drop in oil flows through to the pump and benefits drivers as well as companies and countries that buy a lot of energy like airlines.

Looking ahead, US Conference Board’s Consumer Confidence is due to be released later today, should we see an uptick in the forecasted reading of 128.2 the Greenback may have a reason to strengthen.

The Euro dropped to its lowest level since November 2017, trading as low as 1.1608, recovering towards the end of the session to close around 0.20% lower at 1.1624.

It seemed the risk sentiment recovered following the positive headlines about the US/North Korean summit. The initial market reaction to Italy’s populist leaders failing to form a government was positive, EURUSD managed to trade back above 1.17 but as the market digested the news and realized the country will head to new elections shortly, which according to latest polls will do nothing but benefit the populist leaders, the EURUSD dropped back to the lows 1.16s.

Is not only Italian politics affecting risk sentiment and the Euro, Spain might also be heading to elections so it seems political uncertainty will be dominating Eurozone Headlines in the coming weeks. Italian and Spanish spreads versus Germany are reflecting this, with Italy’s 10-year yield increasing 22 basis points, the highest level in almost 4 years.

The loonie traded at its weakest level versus the US dollar since March, loosing almost 0.30% and closing around 1.2992. The USDCAD managed to break above the important 1.30 short-term resistance level but then retraced to close just below.

The CAD was not only affected by the risk-off market sentiment but also by a more than 2% correction in oil futures. Additionally, Canada bond yields have been recently under pressure, with the 10-year rate dropping to April levels, which doesn’t support the loonie.

The Bank of Canada will meet tomorrow to decide whether or not they need to hike interest rates, but looking at the recent downward momentum on yields and the CAD, the reduction of the interest rate hike probabilities for this meeting (to 20% from 80% on January) seems logical.