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Political maneuvers roil markets

USD - United States Dollar

Demand for the US dollar has swung like a pendulum for the last seven days amidst political uncertainty, growing trade deficits and continued employment losses.

Today, the dollar is down against a basket of currencies after reports that President Donald Trump ended talks for a pandemic relief bill. Contrary to Federal Reserve Chairman Jerome Powell’s suggest for more aid, the president said he was ending negotiations with congressional Democrats.

There may be more to the dollar then political headlines (of course, nearly all headlines appear political). Exports rose 2.2% in August, but imports rose 3.2%. America’s trade deficit reached $67.1 billion, its highest in 14 years. Couple this long-term figure with shrinking employment figures, at the US economy seems listless.

Between August and September, more than 1.1 million dropped out of the workforce, meaning they have stopped looking for a new job. Although this may be good for short term unemployment numbers, it’s devastating to the long-term health of the economy.

Key Movers

The day began well for UK-EU negotiators finding common ground on smaller issues, such as benefits and social security. The two parties are still yet to agree on issues including fisheries and to what extent the UK legislation must align with the EU, which are both large roadblocks. Officials from the EU have been quoted saying that “a deal is possible, but not guaranteed”, however this is still a positive sign, considering the contradictory statements given over the past months from EU officials. It is now just over a week until Johnson’s self-imposed deadline, and there is still a lot to do. The general market consensus is that an extension will be granted.

The Australian dollar tracked lower through trade on Tuesday, giving up 0.72 US cents amid dovish Royal Bank of Australia expectations and a consolidation across equities and risk assets. Having drifted sideways through much of the domestic session the AUD enjoyed a brief upward turn in the wake of the RBA’s policy meeting and rate statement. Policymakers elected to leave interest rates at 0.25% allowing the AUD to jump through 0.72 to touch 0.7210 before a suitably dovish statement paved the way for a 15-basis point cut and additional Quantitative Easing measures come November. The promise of lower interest rates and a QE program targeting 5- and 10-year bonds forced the AUD lower, driving a half-cent decline to 0.7150. Having consolidated at this handle the Australian dollar came under added pressure as risk sentiment flat lined following confirmation President Trump and Republicans have withdrawn from Coronavirus relief talks.

Expected Ranges

EUR/USD: 1.172 - 1.178 ▼

GBP/USD: 1.285 - 1.295 ▼

AUD/USD: 0.709 - 0.715 ▼

USD/CAD: 1.326 - 1.334 ▼