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RBA rate cut unlikely, AUD driven by renewed global demand for risk

AUD - Australian Dollar

The Australian dollar edged back through 0.69 US cents on Friday advancing 0.2% to touch 0.6917. Optimism surrounding phase one of a US/China trade agreement fostered an environment of risk on trade, diminishing demand for safe haven assets, while mixed US macroeconomic data and stronger than anticipated Chinese Manufacturing numbers drove AUD demand.

Friday’s advance capped weekly gains of 1.2% as renewed demand for risk coupled with adjustments in RBA monetary policy expectations helped drive the AUD higher. Investors have pared expectations for further interest rate adjustments in 2019 with just 25% of analysts now pricing in a rate cut before year end. This shift in RBA expectations has helped add a floor under the Aussie dollar and helped narrow the gap between US and Australian interest rate expectations as the Fed and FOMC unwind bench mark cash rates.

Attentions turn to today’s retail sales print and Tuesday’s RBA policy announcement. We anticipate the RBA will leave rates on hold but promote an easing bias leaving the door open for a December, or more likely February 2020 rate adjustment. With resistance at 0.6930 we are seeking a hawkish surprise from the RBA, sustained softness across US data sets and or upbeat US/China trade news to drive the Australian Dollar on toward 0.70.

Key Movers

The US dollar fell through trade on Friday as mixed domestic macroeconomic data sets coupled with a renewed backdrop of improved global appetite for risk forces investors away from the world’s base currency and haven asset. Stronger than expected non-farm payroll numbers offset a third consecutive monthly decline in US ISM manufacturing data. Concerns about a slowing US economy have weighed on the greenback through recent weeks with investors and analyst closely watching key macroeconomic indicators as marked for future Fed policy.

Sterling crept marginally higher through trade on Friday, fuelled primarily by broader USD weakness and a firming belief a no deal Brexit has been avoided. Domestic PMI data did little to move the currency, despite enjoying its strongest month since April as attentions remain squarely affixed to Brexit headlines and election updates. The Brexit party has promised to contest every seat in the upcoming election, dismissing calls for them to sit back and avoid risking damage to the ruling Conservatives majority. Opening at 1.2926 we expect sterling will remain largely range bound through the short term, fluctuating on headline news until a clear path and/or direction is formed.

Christine Lagarde speaks for the first time as ECB president on Tuesday. Attentions will be closely attuned to any shift in rhetoric to that of her predecessor as she looks to tackle division within the ECB.

Expected Ranges

AUD/USD: 0.6830 - 0.6980 ▲

AUD/EUR: 0.6130 - 0.6230 ▲

GBP/AUD: 1.8480 - 1.8830 ▼

AUD/NZD: 1.0710 - 1.0810 ▼

AUD/CAD: 0.8980 - 0.9130 ▲