Daily Currency Update

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USD flat in run up to election

USD - United States Dollar

Demand for the US dollar has remained relatively flat over the two days as traders prepared for the upcoming US presidential election.

The US Dollar Index, which measures the value of the dollar against a basket of major currencies, was down this morning 0.18%. However, rising coronavirus concerns and shifts in the polls for the election, have created further uncertainty for markets.

As the election approaches, traders have taken to three main narratives. First, volatility has remained low because traders have priced in Joe Biden claiming victory. Second, President Donald Trump will pull out a victory. Third, the prospects of contested outcome. Each story will play out differently days before and after the election.

Key Movers

Brexit talks continued with just over two months to go until the UK defaults to WTO rules if a trade deal can’t be done with the EU. There is optimism that we will get a deal sometime next month which is likely one of the reasons why sterling remains relatively elevated. It continues to trade above 1.30 against the dollar and above 1.10 against the euro. There is plenty of scope for some big sterling losses towards the end of the year, should no deal be struck. Also, the Bank of England hinted they may look to introduce negative interest rates early next year although this isn’t a done deal and will likely depend on Covid-19 developments and the outcome of the Brexit trade talks.

It was announced that Nottingham will be placed into tier 3 coronavirus restrictions later this week as case numbers there continue to rise. The city will join Liverpool and Manchester under the tightest controls when the move comes into effect on Thursday night. Pubs that don’t serve a substantial meal will have to close as well as gyms and some other business. The seven-day rolling average for new cases is around the 22,000 and 102 people died from COVID-19 yesterday, although the figure on Monday is usually lower than other days due to a reporting lag over the weekend.

The Australian dollar tracked sideways through Monday struggling to break a 40-point range in what was a largely risk off start to the week. Investors refused to extend bets in either direction amid growing concern the COVID19 second wave will force an extended European lockdown, while US stimulus talks stalled, ensuring there will be no relief package until after next week’s election. Global equities fell with the S&P 500, Nasdaq and Eurostoxx all giving up over 2% while the USD bounced off last week’s low as risk aversion forced investors toward haven assets. Having rebounded from lows at 0.7020 last week we expect the AUD will remain largely range bound as we rocket towards next week’s key risk events. Tuesday’s RBA policy meeting and the US Presidential election are critical markers in governing direction into the end of the year. Markets have largely priced in a 15-basis point rate cut and quantitative easing program. Analysts anticipate the RBA will begin purchasing 5- and 10-year bonds amid a total package valued between $150 – $200 billion. Anything short of this mark leaves markets vulnerable to disappointment and could prompt some AUD upside, while a more robust program will prompt likely prompt a quick AUD correction and could test supports. Barring a collapse in market sentiment we expect the AUD to trade between 0.7020 and 0.7230 through the next week.

Expected Ranges

EUR/USD: 1.179 - 1.183 ▲

GBP/USD: 1.300 - 1.306 ▼

AUD/USD: 0.710 - 0.714 ▼

USD/CAD: 1.316 - 1.322 ▼