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Covid and election drive US dollar

USD - United States Dollar

Demand for the US dollar clicked up today after a retreat yesterday. And with the dollar up, stock markets are down.

The USD gave up Monday’s gains amid growing election uncertainty and surging COVID-19 infections and hospitalizations. Despite a cautious risk backdrop and steep equity sell off the USD struggled to find any real momentum. Investors continued to withhold bets ahead of the November 3 election. National polls have former Vice-President Joe Biden firmly ahead of the incumbent, and President Donald Trump continued to campaign in key swing states. Although 70 million people have already voted, votes are counted on November 3 and the few days afterward.

Last week, about 500,000 Americans tested positives for COVID-19. Increased testing and bad social distancing habits have pushed the number higher in the run up to the election.

Key Movers

Stock markets have been rattled throughout Europe this morning as soaring coronavirus cases raised the chances of stricter lockdown measures. France is an area of concern with 33,417 cases being confirmed yesterday. The number of fatalities, 523, was the highest since April and with President Emmanuel Macron scheduled to address the nation this evening there is growing speculation stricter controls are about to be announced. In Germany, Chancellor Angela Merkel reached an agreement for a one-month closure of bars and restaurants in November.

The pound is lower this morning as risk aversion permeates the markets as Covid-19 cases continue to rise throughout the world. In the UK there was another confirmed 22,885 infections yesterday with 367 deaths, the latter being the highest figure since late May. As a result, markets have flocked to haven assets such as the dollar and yen and the pound has been sold off aggressively in early trading with GBP/USD plunging from around 1.3060 to below 1.30. The prospect of some dire weather forecast for the UK over the next week is likely to do little for the outlook as people look to shelter indoors raising the chances of the virus being spread.

An uncertain undercurrent perpetuated through trade on Tuesday, forcing the AUD to maintain a narrow trading band as investors adopted a measured and cautious tone. The COVID-19 pandemic marked a series of grim milestones across Europe and the US as new infections, hospitalizations and daily deaths all continued to rise. Health leaders called for more restrictions to curb the spread of this second wave. Despite the risk off mood the AUD edged marginally upward bouncing off lows at 0.7115 to touch 0.7147 before creeping lower into this morning’s open. The AUD continues to lag its antipodean and commodity counterparts as investors prepare for next week’s Royal Bank of Australia policy announcement. Attentions today turn to domestic CPI data. Price pressures are expected to remain soft, while inflation remains woefully short of the RBA’s 2-3% target band, amplifying and supporting calls for policy easing on November 3rd. With so many key risk events on the horizon we expect the AUD will maintain its narrow trading band through this week as investor delay bets in either direction until after the US election.

Expected Ranges

EUR/USD: 1.172 - 1.183 ▲

EUR/USD: 1.292 - 1.307 ▼

AUD/USD: 0.704 - 0.715 ▲

USD/CAD: 1.314 - 1.332 ▲