Daily Currency Update

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Second wave fears tilt market motivation

USD - United States Dollar

Traders sought stability in haven currencies yesterday and the US dollar strengthened against other currencies.

Risk sentiment soured after several negative economic reports were released through the day. An alarming rise in coronavirus infection rates around the world, with the US recording its second largest increase in new infections since the pandemic began prompted calls for a return to strict social distancing controls. Investors appear to be finally coming to grips with the fact that the second wave of infections will likely derail the economic rebound as a longer path to recovery lies ahead.

The International Monetary Fund’s most recent review of economic activity, the organization changed its expectations. It expects global output will shrink almost 5%, up from its 3% estimate in April, as advanced economies like the US suffer unprecedented declines in GDP output.

Key Movers

The Australian dollar, having failed in its bid to push above 0.70 US cents now appears somewhat range bound, bouncing between 0.6830 and 0.6960, with more broader supports in play on moves approaching 0.6780 and 0.67. Demand for risk continues to be the primary force governing direction and as markets grapple with an ever-shifting risk on risk off mood, volatility within recent ranges has increased. Investors have become increasingly sensitive to headline news as the risk on move that sustained the AUD upturn through April and May runs out of steam and markets are not yet willing to shift focus to underlying fundamental indicators. With COVID-19 infection rates soaring around the world hopes of a prompt rebound in economic activity are beginning to wane capping AUD upside through the short term and opening the door to a longer period of consolidation and increasing downward pressure.

Expected Ranges

USD/CAD: 1.359 - 1.367 ▲

EUR/USD: 1.119 - 1.128 ▲

GBP/USD: 1.239 - 1.245 ▲

USD/AUD: 1.451 - 1.459 ▲