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AUD tumbles as RBA changes rhetoric and risk sentiment evaporates

By OFX

The Australian dollar plunged through key technical supports on Tuesday marking new 13 month lows at 0.7345 as changes in RBA commentary and broader trade concerns weighed on the currency. Having broken below the 0.7430 and 0.7400 U.S cents the AUD suffered a rapid sell off as risk sentiment all but evaporated from the market following threats from U.S President Donald Trump wherein additional tariffs would be imposed on Chinese exports.

The comments sufficed to fuel and reignite concerns surrounding broader trade tensions between the worlds two largest economies heightening fears an all-out trade war could damage global growth. When coupled with a change in language issued within the RBA’s monthly minutes wherein the board removed assertions the next interest rate adjustment would be up and investors all but rushed to rid AUD holdings. The shift in RBA rhetoric suggests the RBA may be adjusting its stance to prepare markets for a possible rate cut and only highlights the burgeoning gap between central bank interest rate policies.

Opening this morning at 0.7374 attentions remain firmly fixed on ongoing trade disputes as risk sentiment drives direction. A weekly close below 0.7400 could suggest support has become resistance and the AUD is entering a new short -medium term trading handle between 0.7200 and 0.7400.

The New Zealand dollar opened yesterday at 0.6935 and traded sideways before an afternoon sell off ensured. A bout of risk aversion came into play during the Asian session as trade tensions between United States and China continue to play out.

The latest GlobalDairyTrade auction did no favours for the kiwi as markets saw the index fall to negative 1.2% and the second consecutive fall for the month. Westpac consumer sentiment for the month was down 2.6 points for the month of June with a reading of 108.6 as consumer confidence waned with households ability to save remains low.

Eventual lows at the close of play hovered around the US 69 cent handle and overnight lows were seen at 0.6885.

Movements this morning will be dependent on the release of this mornings current account figures for the quarter with the New Zealand Dollar opening this morning at 0.6890.

The Great British Pound is again weaker this morning when valued against its US counterpart as the US President Donald Trump directed officials to draw up a list of a further $US200 billion worth of Chinese imports that could be targeted with tariffs of 10%. The pound subsequently took a hit reaching a 2018 low of 1.3150 as investors dumped high-yielding assets.

Looking ahead today and the UK macroeconomic calendar is light with no relevant data releases. Therefore in the absence of any major data releases today the market will continue to focus on any risk-off sentiment.

From a technical perspective, the GBP/USD pair is currently trading at 1.3169. We continue to expect support to hold on moves approaching 1.3140 while now any upward push will likely meet resistance around 1.3210.

Headlines again dominated the spot light as investors fled to safety over escalating trade war concerns. The past 24 hours have been exceptionally volatile for global FX markets as Traders attempt to work out a strategy in a changing landscape. Ultimately though, the USD strengthened against a basket of currencies, reaching 95.01 on the DXY.

President Trump was again the catalyst for volatility in overnight trading, announcing overnight that he was considering tariffs on $200b worth of Chinese imports. Again, the Chinese response was swift, releasing a statement saying that it intended to take ‘comprehensive quantitative and qualitative measures’ should the tariffs be implemented. Currently China imports approximately $130b worth of goods and cannot match the tariffs directly. Analysts suggest they could implement their counter in a variety of ways to adjust for this, including increased regulatory scrutiny.

Investors across the globe took the news poorly with a flight to save-haven currencies and assets. The S&P dropped 0.5% straight away and the Shanghai Composite dropped 4%. US 10-year treasury yields fell to 2.85% from 2.92% and the Japanese Yen (safe-haven currency) appreciated by 1%. The Aussie, a proxy for China, fell from 0.7425 to 0.7350 recording a fresh year to date low.

The market now turns its attentions to further headline and more central bank speeches with the RBA, ECB, BOJ and the FED releasing statements today.

The Euro lost around 0.30% versus the USD and closed just shy of 1.16. The pair started the Asian session around 1.1640 but a risk-off sentiment inspired by trade tensions between US and China saw the pair move all the way down to 1.1530, where it was able to find good support.

The risk off sentiment saw the USD gain across the board but markets were able to find some stability following Bank of China Yi remarks around the bank’s tools to provide liquidity, urging investors to stay calm.

EURUSD managed to recover some ground to the high 1.1500, closing at 1.1590. The support and resistance levels signalled yesterday continue in place (1.1510/1.1625), with potential selling interest above the 1.16 figure.

The loonie continued to trade on the back foot Yesterday, loosing 0.6% versus the USD with USDCAD trading all the way up to a new year high at 1.3286.

The 1.3240 level on the USDCAD acted as resistance during the start of the European session but the CAD was impacted but further trade concerns, not only from the US-China drama but also from Trump declarations around NAFTA, saying Canada treats the US “horribly” from a tariff perspective.

Uncertainty around OPEC next output debate put some downward pressure on oil, which also weighted negatively on the loonie.

Next levels to watch for the USDCAD are the 1.3345 area on the upside and we’ll have to see if now 1.3240 acts as support.