Currency Update - Tuesday 22nd October 2019
AUD
Risk sentiment has started the week on a positive note with the Australian Dollar being a chief benefactor. The S&P and NASDAQ both posted gains of about 0.7% while US yields also pushed higher with the 2- and 10-year rates climbing 4 basis points. The boost in optimism stemmed from advancements in negotiations on trade between China and the US while a cautious approach to the weekend’s Brexit vote failure helped stabilised financial markets. China’s Vice Premier, Liu He, said that ‘substantial progress’ has been made in the negotiations for a deal. There was also an acknowledgement that an end to the trade war would help their economies as well as the rest of the world. The conciliatory commentary from the Chinese side bodes well from the possibility of an agreement being reached in November, something President Trump has called for, but few traders have actually believed possible. If a deal is reached expect the Australian Dollar to enjoy the upside of a much less volatile global economy.
USD
The Australian Dollar is running up on the USD with a full head of steam as markets enter a more risk on stance. We had a high of 0.6880 last night before the bulls took a break and markets currently trade at 0.6865. There’s an absence of data today so expect the Australian Dollar to continue to test 0.69 as long as markets maintain their appetite for risk. There is predictably some downside risk coming from the American side of negotiations with Ross saying that a deal doesn’t have to be made in November, rather it must be the right kind of deal. If we see some delay or if the US and China trip themselves on any hurdles at the negotiating table then we could see traders behave more cautiously and consequently downside for the Australian dollar.
EUR
The Australian Dollar continues its run against the Euro today pushing close to one month 4 week highs with markets currently trading at 0.6157. Little data to account for this morning with run coming primarily from Brexit melodrama and a positive run sentiment benefiting the Australian Dollar more than the Euro. On Brexit Brussel’s is currently deliberating on yet another extension for the politically divided UK after the latest Brexit deal was blocked from being heard in Parliament. Brussells may very well need to decide whether an extension and possible deal and/or second referendum is worth the pain or if they should just squeeze the trigger on no extension and therefore no-deal.
GBP
The Australian Dollar has edged higher overnight against Pound Sterling after spending most of yesterday creeping lower. We’re currently trading at 0.5295 after the latest Brexit failure has seen the Pound move lower. Boris’ deal is so far dead in the water with the Speaker of the House ruled out by John Bercow. Bercow has made his position clear that with so many Brexit deals being voted down before the House that he would not continue to allow deals to be heard before Parliament “just because the loser doesn’t like losing”. With the deal blocked Boris’ ambitions will now be ironically decided by Brussel’s who must determine if they have the appetite for another extension for the UK. If an extension is provided (which is most likely) then the political manoeuvring will begin again with a debate raging over a general election, another referendum and undoubtedly more deals to deliberate on.
NZD
The Australian has taken a fall against the Kiwi overnight after finishing yesterday strong reaching highs of 1.076. We fell to support levels of 1.070 that we’ve fallen to several times this week and we should expect to see a fairly tight range bound trading pattern for the rest of the week. We have Australia’s inflation data the next major point of release next week as the next major Antipodean data release.