Home Daily Commentaries Risk sentiment sours as the Australian dollar hits monthly low

Risk sentiment sours as the Australian dollar hits monthly low

Daily Currency Update

AUD - Australian Dollar

Last week the Australian dollar was hampered by a flight to risk aversion and a stronger greenback, closing a full cent lower from Monday open. The AUD/USD continued its march lower on Friday dropping 0.63%.

Despite a lift in wages growth of 0.6% for the quarter and 2.2% for the year, it was the Reserve Bank of Australia’s Governor Phillip Lowe's speech that assisted the local currency’s grind lower stating that once again the central bank will not be pressured to lift interest rates until further increases in wage and inflation levels were seen. Friday closed at 0.7227 after opening at 0.7265, fuelled by movements into safe haven currencies during the European trading session amid further lockdowns.

Domestically this week, investors look to the latest Manufacturing and Service PMI figures due for release this morning. The Australian dollar opens higher this morning at 0.7243. We expect support levels to hold onto moves approaching the 72 US cent handle, while any upward push will likely meet resistance at 0.7290.

Key Movers

A fourth wave of COVID-19 in Europe sent markets scurrying back to safe haven assets as Austria went into lockdown measures for the unvaccinated and Germany could soon follow. Germany saw its highest single surge of COVID-19 infections, reporting 65,000 new cases dampening the EUR/USD, dropping 0.8% on the day to 1.1280 and a six year low against the Swiss franc.

The greenback remained bullish, supported by a more hawkish Federal Reserve, led by expectations that two interest rate hikes are now expected in 2022. The US Dollar Index (DXY) which measures the world's most traded currency against a basket of six currencies was 0.57% higher on Friday and hit 16-month highs of 96.23.

Elsewhere we saw another better than expected posting of UK data, with the release of retail sales. The reading beat expectations, coming in at 0.8% in October versus a forecast of 0.5%, the first monthly rise since April. Despite the reading, it was not enough to buck the strength of the US dollar, finishing 0.38% lower at 1.3442.

This week focuses on the Reserve Bank of New Zealand, where expectations are to raise interest rates by at least 25 basis points, followed by FOMC meeting minutes due for release on Thursday morning.

Expected Ranges

  • AUD/USD: 0.7200 - 0.7290 ▲
  • GBP/AUD: 1.8420 - 1.8800 ▲
  • AUD/NZD: 1.0280 - 1.0370 ▲
  • AUD/EUR: 0.6380 - 0.6460 ▲
  • AUD/CAD: 0.9100 - 0.9190 ▲