Australian Dollar Hits Two-And-A-Half-Year Low Against US Dollar

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  • Australian Dollar Under Pressure Thanks to Fed Rate Hike Bets – Strong export data fails to boost AUD exchange rates
  • Euro Picks up in Spite of Near-Contraction in German Construction Sector – Weaker factory orders could drive single currency lower
  • Strong Factory Orders Data Boosts US Dollar Demand – USD exchange rates remain on stronger footing
  • Canadian Dollar Slumps on Disappointing PMI – Signs suggest weakness within Canadian economy

Rising Exports Unable to Support Australian Dollar

The Australian Dollar fell to a two-and-a-half-year low against the US Dollar yesterday, failing to take advantage of stronger domestic trade data. Although Australian exports saw a strong rebound on the month in August, rising 1%, this was not enough to offset the wider decline in risk appetite. While the Australian economy demonstrated signs of resilience AUD exchange rates came under pressure as a result of the strengthening US Dollar and rising odds of another 2018 Federal Reserve interest rate hike.

An uptick in August’s retail sales figure may still offer some support to the Australian Dollar ahead of the weekend, though.

Pound Shakes Off Slump in UK Car Sales

New car sales slumped sharply in September, sliding -20.5% on the year in a month which is traditionally a strong performer for the motor industry. This cast fresh doubt over the outlook of the UK economy, although the slowdown was also attributable to external factors such as new emissions tests. Even so, speculation over Brexit and an easing in domestic political jitters helped to keep the Pound on a stronger footing overnight.

Unless the Halifax house price index demonstrates robust growth in September this could leave the Pound open to renewed downside pressure today.

Weak German Construction Sector Fails to Limit Euro Demand

Support for the Euro remained solid yesterday even in the wake of a disappointing German construction PMI. In another negative sign for the Eurozone’s powerhouse economy the construction index slumped from 51.5 to 50.2 in September, slowing to a state of near-stagnation. Investors largely ignored this weaker showing, though, as the focus remains on the health of the German manufacturing sector instead. Lingering tensions over the Italian budget plan also failed to weigh down the Euro.

A slump in August’s German factory orders figure may put a dent in EUR exchange rates this afternoon, however.

US Dollar Gains Boost From Leap in Factory Orders

A sharp resurgence in US factory orders in August offered fresh encouragement to USD exchange rates. As orders strengthened 2.3% on the month this boosted confidence in the health of the US economy, giving investors further incentive to bet on the Federal Reserve raising interest rates again before the end of the year. Better-than-expected jobless claims data was also welcomed ahead of tonight’s US unemployment rate, suggesting that the labour market is continuing to tighten.

If the unemployment rate dips from 3.9% to 3.8% in line with forecasts the US Dollar is likely to extend its bullish run further.

Unexpectedly Weak PMI Drags Canadian Dollar Lower

September’s Ivey PMI shocked investors by crumbling from 61.9 to just 50.4, only just above the neutral baseline of 50. This weaker showing undermined optimism in the outlook of the Canadian economy, suggesting that the Bank of Canada (BOC) could take a more measured approach in the months ahead. With oil prices still under pressure there was little reason to favour the Canadian Dollar overnight.

Further volatility is likely for CAD exchange rates this evening with the release of September’s labour market data, a decline in the unemployment rate may help to boost demand.

Risk Aversion Weighs on New Zealand Dollar

Market uncertainty and a stronger US Dollar both put pressure on the New Zealand Dollar yesterday as the risk-sensitive currency fell out of favour. As the odds of another Federal Reserve interest rate hike continue to increase this raises the risk of policy divergence with the Reserve Bank of New Zealand (RBNZ). As the RBNZ still looks biased towards an interest rate cut this has weighed heavily on NZD exchange rates.

Ahead of tonight’s US data the New Zealand Dollar may struggle to find any particular support against its rivals.

Data Released

October 5th 11:30 AUD Retail Sales (MoM) (AUG) 0.3%
October 5th 16:00 EUR German Factory Orders (YoY) (AUG) -3.0%
October 5th 17:30 GBP Halifax House Price Index (YoY) (SEP) 3.3%
October 5th 22:30 CAD Unemployment Rate (SEP) 5.9%
October 5th 22:30 USD Unemployment Rate (SEP) 3.8%

Post by TorFX

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