Australian Dollar Gains Ground on Signs of RBA Optimism

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  • RBA Unexpectedly Lifts 2018 and 2019 Growth Forecasts – AUD exchange rates strengthen on signs of cautious policymaker optimism
  • Brexit Secretary Comment Prompts Pound Sterling Surge – Lack of concrete progress limits GBP exchange rate gains
  • Rising German Factory Orders Benefit Euro – Single currency vulnerable to weaker Eurozone retail sales data
  • Markets Brace for US Midterm Elections – US Dollar under pressure from political jitters

Australian Dollar Rises After RBA Lifts Growth Forecasts

While the Reserve Bank of Australia (RBA) opted to leave interest rates on hold at its November meeting policymakers also chose to revise the 2018 and 2019 growth forecasts. This move suggests that the RBA maintains a more optimistic outlook on the Australian economy, even though concerns over household consumption remain. Australian Dollar exchange rates trended higher in the wake of the announcement even so, also benefitting from a weaker US Dollar.

However, if the construction PMI remains in a state of contraction in October this could weigh on the mood of the Australian Dollar this morning.

Brexit Optimism Offers Pound Boost

An apparently optimistic comment from Brexit secretary Dominic Raab helped to boost the Pound overnight. As Raab gave a verbal ‘thumbs up’ on leaving a crunch cabinet meeting at Downing Street this prompted investors to pile into the Pound. However, as the meeting ultimately failed to yield any concrete progress towards a deal GBP exchange rates struggled to hold onto their initial boost for long. The disappointing nature of October’s BRC like-for-like sales data also limited the appeal of the Pound.

Any fresh Brexit developments could encourage further GBP exchange rate volatility later today.

Euro Benefits as German Factory Orders Strengthen

As October’s German factory orders showed a surprise uptick on the month this encouraged the Euro to return to an uptrend yesterday. The 0.3% growth suggests that the Eurozone’s powerhouse economy managed to shrug off global trade tensions at the start of the fourth quarter. A better-than-expected acceleration in the Eurozone producer price index added to the positivity of the Euro, pointing towards a further increase in inflationary pressure within the currency union.

Weaker Eurozone retail sales could put renewed pressure on EUR exchange rates this evening, however.

Midterm Election Jitters Limit US Dollar Exchange Rates

Political jitters weighed on the US Dollar overnight, with investors wary of a potential shakeup in the midterm elections. If the Democrats make significant gains this could limit the Trump administration’s ability to enact further tax cuts or escalate trade tensions. This prospect failed to encourage the market, which remains generally averse to any degree of political change. As a result, USD exchange rates struggled to find any support as the polls opened.

Once the results of the election become known the US Dollar is likely to experience fresh volatility, with the direction of movement depending on the outcome.

Mixed Buildings Data Weighs on Canadian Dollar

The latest Canadian building permits figures proved rather mixed, as a modest uptick in September contrasted a downwardly revised August result. All in all, this did not paint the most encouraging picture of the domestic outlook as the construction sector appears to remain under pressure. Canadian Dollar exchange rates remained on a weaker footing in the wake of the data, also suffering from a fresh downturn in oil prices.

Unless the Ivey PMI climbs further away from contraction territory tonight CAD exchange rates may struggle to find any support.

New Zealand Dollar Struggles as Dairy Prices Extend Their Decline

Prices continued their multi-month run of declines at last night’s Global Dairy Trade auction, indicating that the sector remains under pressure. This disappointing showing limited the appeal of the New Zealand Dollar, with market risk appetite generally muted. A weaker US Dollar was not enough to give NZD exchange rates any particular boost at this stage.

The New Zealand Dollar could gain some ground this morning, though, if the third quarter unemployment rate dips as forecast.

Data Released

November 7th 08:30 AUD Construction PMI (OCT) 
November 7th 08:45 NZD Unemployment Rate (3Q) 4.4%
November 7th 21:00 EUR Eurozone Retail Sales (YoY) (SEP) 0.8%
November 8th 02:00 CAD Ivey Purchasing Managers Index (OCT) 50.9

Post by TorFX

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