Australian Dollar bounces off decade lows as markets adjust US rate expectations
Friday 28 February, 2020
Daily Currency UpdateAUD - Australian DollarThe Australian Dollar bounced off decade lows Thursday, buoyed by broad based US dollar weakness. Despite a sustained risk off environment the AUD crept higher to touch intraday highs at 0.6589 as investors repositioned US monetary policy expectations. Treasury yields corrected lower as rate cut expectations gathered momentum with investors pricing in a quarter point rate cut within the next two months and a program of monetary policy easing through the 12 months to March 2021. Having bounced off 11-year lows at 0.6550 the AUD struggled on moves approaching 0.66 as investors remain reluctant in extending upside in the face of the broader risk off mood. The spreading coronavirus ensures demand for the AUD remains largely muted with the upturn driven primarily by US softness. We expect the AUD will remain largely range bound through the short term with risks skewed to the downside. In the event the coronavirus touches down domestically we expect the AUD will come under sustained pressure and could test supports at 0.6550 and plumb new lows approaching 0.64 and 0.63.
Key MoversThe Great British Pound touched five-week lows against the Euro through trade on Thursday as trade talks stalled and fiscal spending expectations faltered. Britain maintained a hardline stance in negotiations with EU trade officials pushing for binding access to the EU’s financial market. London, as the financial hub of Europe is dependent on access to the EU as its biggest market for key banking and financial services. Failure to secure a favourable trade agreement could have an immeasurable impact on the UK's financial centre. Slipping back below 1.2860 we expect sterling will remain range bound around the 1.30 handle with larger swings as GBP volatility increases. The US dollar tracked lower through trade on Thursday as markets priced in an increased likelihood the Fed will cut interest rates before May. Futures markets have now fully priced in a quarter point rate cut in April with a full percentage point reduction pushed through by March 2021. The dollar index fell to three-week lows moving through 98.40 as investors reposition and unwind recent short term carry trade positions and correct US economic expectations in the face of the spreading coronavirus.
- AUD/USD: 0.6520 - 0.6630 ▲
- AUD/EUR: 0.5950 - 0.6030 ▼
- GBP/AUD: 1.9480 - 1.9720 ▼
- AUD/NZD: 1.0380 - 1.0450 ▼
- AUD/CAD: 0.8720 - 0.8830 ▲