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Risk-on backdrop continues to drive broader AUD upturn

AUD - Australian Dollar

The Australian dollar crept higher through trade on Thursday, buoyed by a sustained risk-on backdrop and broad US dollar weakness. The rally across equity markets continued as the global economy continues to respond positively to increased activity and mobility as lockdown measures ease. The AUD found further support after the Peoples Bank of China arrested the Yuan’s collapse, fixing the currency near record lows. Increased trade tensions have forced investors to dump the offshore CNY on speculation Beijing would let the currency weaken in a bid to sure up exports amid mounting tariffs. With Chinese state-run banks selling USD through the later half of the Australasian session the Yuan stabilised helping cap AUD downside in the short-term. Having touched intraday day lows at 0.6587 the AUD pushed through resistance at 0.6630 to touch 0.6667, before edging lower into this morning’s open.

The Australian dollar remains vulnerable to the ongoing uncertainties surrounding trade and the global economic recovery with topside gains increasingly hard won. However, having broken resistance at 0.66 and 0.6630 there is scope for further short-term upside. If optimism continues to foster sustained demand for equities, the AUD’s close correlation with equity markets could prompt a run through 0.67.

Key Movers

Safe havens were again the days big losers as the risk-on backdrop prompted investors to chase higher yields. The USD index fell half a percent, slipping below its 100-day moving average and marking a new two month low. Having broken key supports this week, sustained optimism could add further downward pressure as focus begins to shift to underlying macroeconomic performance and monetary policy.

The euro consolidated its break above 1.10, touching two-month highs as investors’ confidence that EU leaders will introduce extensive fiscal support in the coming months improved. This weeks 750billion euro proposal has helped narrow bond yield spreads for Italian and Spanish bonds as markets prepare for extensive stimulus programs through H2. While the current proposal is yet to be approved by all 27 EU countries, the current plan at least offers a starting point for joint debt negotiations.

Expected Ranges

AUD/USD: 0.6480 - 0.6680 ▲

AUD/EUR: 0.5930 - 0.6050 ▼

GBP/AUD: 1.8450 - 1.8930 ▲

AUD/NZD: 1.0620 - 1.0750 ▼

AUD/CAD: 0.9050 - 0.9180 ▲