Currency Update - Tuesday 1st October 2019
AUD
Another quiet day for the Aussie Dollar as markets holds their breath awaiting the RBA decision. There’s a strong expectation of a cut but with current rates at only 1% there can more greater hesitation to make cuts as a 25 basis point cut now represents a greater percentage cut than when levels are higher. Some things are playing in the favor of an RBA rate cut such as Q2 GDP falling short of August SoMP forecasts which came as some surprise to the RBA. The RBA is now playing catch up to achieve its year-end 2019 and 2020 GDP forecasts and given that wage growth has stalled there is significant pressure on the RBA to cut. Expect the Aussie Dollar to stay in a holding pattern leading up to the rate cut decision.
USD
The USD is enjoying a run of strength as markets absorb recent trade and geopolitical and we see some return of risk to the market. So far this hasn’t benefitted the Antipodeans but US equities have posted modest gains with the S&P500 posted gains 0.55% and NASDAQ up 0.7%. Oil has drifted lower with a 2.8% loss and US yields remained fairly flat. USD has been largely unaffected by the miss on US Chicago PMI and there’s been a stretch of buying pressure on the USD which has helped the greenback get up on the GBP and EUR. Fed member Evans spoke on the US economy commenting that the US fundamentals remain good though there are some increasing signs of economic fragility. Looking ahead for the next big data entry we’ve got ISM Manufacturing PMI at midnight tonight.
EUR
The Euro has had a mixed day after a glut of data with Into European trade and German retail sales coming in at expectation while the Spanish saw their GDP for Q2 revised down from 0.5 to 0.4% (annual rate down from 2.3% to 2%). September CPI came in at flat for the month vs the expectation of +0.1%. German unemployment rate held at 5% at expected and regional CPI surveys for September pointed to inflation pressures remaining low. German CPI also came in flat as expected and the annual rate is coming in at 1.2% (from a forecasted 1.3%). With liquidity thin and some month end quarter end selling reported we quickly saw Euro take another tumble against the greenback and some marginal losses against the AUD.
GBP
Not an enormous amount of news for Pound Sterling outside of a number of Tory politicians taking to the airwaves to announce that the UK would leave the EU on October 31st with or without a deal. This could be a signal that Boris has brought his cabinet together and given them some plan of attack for them circumvent the legislation that passed parliament that would force Boris to request another extension. Boris has been largely boxed into difficult choices with seemingly only four moves left: break the law and not request an extension; request an extension he vowed never to do; resign; or attempt to secure the Brexit deal. So far there’s been no signal of what he plans to do but with Tory reaffirming that the UK will leave on the 31st of October we will soon find out. Markets remained largely unaffected by the latest move by the Tories though the Pound did post marginal losses across the board.
NZD
The Kiwi Dollar remains under pressure after business sentiment gauge dropped to April 2009 levels. There’s been a surge in USD strength and this has put the pressure on the NZD as trading slows down ahead of the RBA rate cut decision. The Q3 Business Confidence survey provided dropped down to -35% with the most pessimistic sector being the manufacturing sector. Reasons cited were the continued weakening in both domestic and export demand and the continued uncertainty over the trade war between the US and China. Expect fairly flat trading for the NZD until we have the RBA decision out today.