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Equity markets drive dollar demand down

USD - United States Dollar

Demand for the US dollar declined for the second straight day, making it more expensive to buy goods and services from other countries.

Over the last two days, traders have shifted to the equity markets. We’ve seen the S&P 500 and other market indexes rise, and this in turn pushes the demand for dollars down. The markets have risen on expectations that a US federal aid package will pump more money into the economy, or specific industries.

President Donald Trump’s actions have pushed market participants to gamble on a new administration. Since his release from the hospital after receiving treatment for COVID-19, he has made several erratic announcements. First, he halted aid talks, and then suggested industry specific talks. Next, Trump withdrew from the next presidential debate with Vice President Joe Biden. He followed that up with announcements of new, in-person rallies in Florida and Pennsylvania to downplay the risks associated with the novel coronavirus. COVID-19 has killed more than 200,000 Americans.

EURUSD is up over half a percent. GBPUSD is up nearly two-thirds of a percent. USDCAD is down over half a percent.

Key Movers

Bank of England Governor Andrew Bailey addressed the public on Thursday and provided an updated on the health of the UK economy. He said that the transition after COVID-19 will be tough and that he has high hopes that a Brexit deal will be agreed. The final two roadblocks to a deal are related to fisheries and common ground legislation, however there are rumors that the UK is looking to extend its self-imposed deadline.

Bailey stated that the economic recovery has been very uneven and is very much sector dependent. He suggested that the UK Q3 output was about 7-10% off pre-covid levels and that the ‘second wave’ will not cause the long-term damage that the first wave brought with it. Sterling will likely see a bounce as we get official confirmation of a deal extension. UK GDP figures were released for August on Friday morning showing a 2.1% rise, which was less than expected despite the government’s ‘Eat Out to Help Out’ scheme.

The Australian dollar crept higher through trade on Thursday, bouncing off lows approaching 0.71 US cents. Sentiment continues to drive direction and the AUD has whipsawed between support and resistance as demand for risk fluctuates. Having drifted below 0.71 earlier in the week following President Trump’s withdrawal from coronavirus relief talks, the AUD has rebounded and tested a break above 0.7170 as hopes of at least a targeted stimulus plan grow and markets begin pricing in a Biden Presidency. Market confidence the Democrats will regain the Whitehouse and control both the Senate and House of Representatives is growing, as polls suggest a Biden/Harris victory will be healthy enough to avoid any Republican dispute. Markets concern a close race would lead to a protracted legal battle has eased in recent days bolstering demand for risk, as a Democrat victory will likely result in a swathe of new and aggressive stimulus measures.

Expected Ranges

EUR/USD: 1.175 - 1.182 ▼

GBP/USD: 1.292 - 1.301 ▼

AUD/USD: 0.715 - 0.723 ▼

USD/CAD: 1.311 - 1.321 ▼