Daily Currency Update

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US manufacturing output increases

USD - United States Dollar

Demand for the US dollar increased slightly this morning as investors exited equity markets for cash. Investors shivered over COVID-19 outbreaks in China have been reported over the last 11 days. Apparently, these investors have missed any news reports coming from the US market.

Meanwhile, private sector businesses in the U.S. indicated a strong start to 2021, as output and new orders rose further. Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index posted 58.0 in January, up from 55.3 in December. The survey of about 800 purchasing managers is a leading indicator of economic health.

Key Movers

The euro edged higher yesterday, pushing off lows approaching 1.20 to extend beyond 1.2150. The European Central Bank left its policy setting unchanged while ECB President Christine Lagarde expressed hope the “roll-out of vaccines allows for greater confidence in a resolution to this health crisis.” While Lagarde did point to a higher euro as a marker of inflation, she offered little to surprise markets to allow the single currency to capitalize on broader USD weakness.

Great British pound was boosted by stronger than expected inflation data yesterday. The Consumer Price Index year-on-year was released at 0.6%, marginally better than the expected 0.5%. The data strengthened the argument that the Bank of England does not need to enact any more interest rate cuts in the near term. Beyond this, sterling’s strong performance over the cause of yesterday and today can be attributed to a broader buoyant investor sentiment and stock markets in the green, as risk sentiment floods back into the markets.

The Australian dollar crept higher through trade on Thursday amid an ongoing increase in the demand for risk. Equities dragged risk assets higher and while moves across currency markets were somewhat modest, commodity and traditional risk proxies benefited on the day. The AUD found support early following a decline in the unemployment rate. While the pace of job creation slowed, the unemployment rate fell 0.2%, a strong indication the domestic economy is recovering quickly from COVID-19 enforced lockdowns. It is certainly encouraging to see the labor market rebound however with Job Keeper schedule to end in March, our focus remains on sustained improvements for a clearer picture of domestic economic health.

Expected Ranges

EUR/USD: 1.213 - 1.218 ▲

GBP/USD: 1.364 - 1.373 ▲

AUD/USD: 0.770 - 0.776 ▲

USD/CAD: 1.262 - 1.272 ▲