Currency Update - Tuesday 1st October 2019
AUD
Yesterday’s local data began poorly with Building Approval numbers for August showing a contraction of 1.1%, in what was perhaps a sign of a tough day ahead for AUD. After the shaky start, the RBA cut interest rates by 25 basis points for the third time in four months, leaving the cash rate 0.75%, levels never seen before. Philip Lowe maintained the easing bias, citing lack of wages growth, below trend inflation and slow global growth as the main drivers for the move. So far only two of the four big banks have passed on any savings to borrowers, CBA and NAB both passing on roughly half of the cut. Markets are expecting at least one more rate cut between now and February. Sustaining the AUD’s slide, risk sentiment also took a knock overnight with surprisingly poor manufacturing data from the US (see below), adding to the sluggish global growth theme. Local data will take a break today and with China enjoying its week-long holiday for the 70th anniversary, intraday movement should be limited.
USD
USD was generally strong overnight against most currencies (GBP excluded), with AUD losses the most pronounced in the wake of yesterday’s interest rate cuts. After trading to a high of 0.6776 immediately after the rate decision, there was heavy selling which intensified as we saw a weakening in global risk sentiment throughout the evening. AUDUSD bottomed at 0.6671 before settling around the 0.67 mark where we open this morning. To the US data, and the lowest ISM manufacturing print from the U.S. since 2009 was the driver behind a soft session for risk sentiment, the measure showing a 10 year lows of 47.8, down from 49.1 and below expectations of 50.0. Notably 15 out of 18 industries reported contraction in September, up from 7 in August. Wall Street and US yields both faltering under the weight of disappointment. The data will continue tonight with ADP Non-Farm Employment numbers and Oil Inventories. Support for AUD now sits around 0.6650 and resistance is probably a bit thin on the way back to 0.68.
EUR
AUD lost over 1% against EUR in the last 24hrs, opening this morning at 0.6130 in the wake of the RBA’s most recent interest rate cut. European manufacturing MPIs were mixed overnight, with Spain at 47.7 (48.2 expected) and Italy at 47.8 (48.1 expected). France came in at 50.1 (50.3 forecast), Germany 41.7 (41.4 expected) with the EZ reading at 45.7 (45.6 expected). EUR was slightly weaker as a result, however AUD was unable to capitalise. A quieter night ahead with a speech from the President of the German Bundes Bank (Germany’s RBA equivalent) the main highlight.
GBP
The effect of local interest rate cuts not as pronounced against GBP, with AUD opening at 0.5453 this morning, only 0.5% below the pre-RBA level. Overnight UK Manufacturing PMI was better than expected at 48.3 (47.0 expected) although still contractionary (a sub-50 number indicates contraction). To Brexit, and UK PM Johnson said that he has a solution on the Irish border and that a very good offer is going to be made. Later headlines then suggesting that the EU was ready to consider a time limit on the Irish backstop. Other headlines said that there could be other concessions if the UK accepted the backstop and that the Northern Irish parliament would have a say. No UK data tonight.
NZD
AUD opens slightly lower against NZD at 1.0745 this morning. The Kiwi dollar not able to capitalise on the RBA interest rate cuts because it suffers from the same risk sensitivities as AUD and the recent RBNZ 50 basis point interest rate cut of its own. NZDUSD fell to 0.6203 at the low point overnight, representing fresh 4-year lows, the USD strength clear to see. No Kiwi data today.