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USD choppy days before election

USD - United States Dollar

With just five days left until election day, demand for the US dollar has bounced up and down against most currencies.

America’s GPD grew 7.4% from August to September and exceeded forecasts. And new jobless claims were smaller than expected. However, the positive economic news wasn’t the treat we’d hoped for. The US economy is still smaller than it was before COVID-19 lockdowns. Just over half of the jobs lost to the lockdown have been recovered.

Yesterday, the US hit a record for new COVID-19 cases with 88,000 cases. This third wave has hit the mid-west and mid-mountain states the hardest.

The US dollar advanced through trade on Thursday, buoyed by a sharp downward correction in the euro amid fears the 2nd shutdown will curtail the economic recovery, as the ECB chases further policy easing to stave off a worsening recession. The US dollar index, driven by euro weakness touched a four-week high, up half a percent to 93.94.

Key Movers

Extended lockdown restrictions across the continent and the promise of additional monetary policy easing from the ECB cast a pall over currency markets, as the outlook for macroeconomic performance looks grim.

Majority of investors are fixated on the final stage of Brexit discussions, which restarted yesterday and there are still a few areas of disagreement. According to the latest headlines, Brussels rebuffed new UK proposals on state subsidies. Monday morning sees the release of UK Manufacturing PMI, which will likely leave the market unchanged, despite the figure posted.

The Australian dollar edged near the psychological 0.70 handle through trade on Thursday, drifting lower after having failed to respond to improving market sentiment. Having given up 0.7050, the AUD marked fresh intraday lows at 0.7005 despite a rebound in equities and other risk assets. With little of note on the domestic docket, the AUD suffered a sell off by association, as markets looked to shed growth and commodity correlated assets amid a sharp correction in the euro. Investors have been reluctant to extend AUD upside beyond 0.7150 this week, as expectations for an RBA policy adjustment and the effects of COVID-19 weigh on risk demand in the lead up to next week’s US election. While seemingly well supported above 0.70 for now, investors have sidelined bets ahead of next week’s risk events. A dovish surprise from the RBA and a Bond program north of AUD$150-200 billion could be the catalyst to push the AUD through this handle, while a contested and drawn out election will weigh on risk demand and certainly prompt further AUD selling through the short-term.

Expected Ranges

EUR/USD: 1.165 - 1.169 ▲

GBP/USD: 1.288 - 1.298 ▼

AUD/USD: 0.700 - 0.706 ▲

USD/CAD: 1.329 - 1.336 ▲