Currency Update - Friday 18th October 2019

AUD

More positive signs from Brexit has helped maintain a positive risk sentiment in the markets that has helped the Australian dollar and other risk assets. Equities in the US have made marginal gains while 2-year US yields also saw some gains. In other positive sentiment news, we’ve heard some positive noise coming from China that has made substantial progress towards Phase 1 of its deal with the United States. Phase 2 talks have already allegedly begun, so we could very well be seeing pen put to paper soon which should act as a significant risk-on boost for markets of which the Australian Dollar is a primary benefactor. We still have a glut of Chinese data coming out today including GDP, Fixed Asset Investment and Industrial Production so expect the Australian Dollar to have further upside if we see some positive numbers roll in around 1pm Sydney time.

USD

The Australian Dollar has broken through a stubborn resistance level against the USD off the back of the positive sentiment pervading markets and currently trades at 0.6826. The breakout was primarily motivated by positive news from the UK and China/US negotiations, putting the Australian Dollar at close to 4-week highs. Also assisting the higher move against the greenback was a host of US data released in early New York trade. Housing data was mixed with September Housing Starts falling 9.4% to 1.256 mio to come in considerably worse than expectations while Building permits fell by 2.7% to 1.387 mio to beat expectations. Weekly jobless claims all but matched expectations while the Philly Fed Business Outlook dipped to 5.6 in October, down from 12.0 and worse than expectations of 7.6. Also coming out was September Industrial Production which fell by 0.4% worse than expectations while Capacity Utililisation was 77.5%, missing on expectations of 77.7%. All in all there weren’t enough wins for the USD amid the losses and coupled with global events, selling pressure resulted on the USD. That's it for economic data from the US for the week, but watch for confirmation of trade deals tonight.

EUR

The Australian Dollar spent much of yesterday improving against the Euro and we appear to have consolidated above the 0.61 level with markets currently trading AUD/EUR at 0.6136. While the Australian Dollar has enjoyed the risk-on sentiment, the Euro has had to contend with a tumultuous Brexit update. After a marathon negotiation, the UK and the EU has come to an agreement on paper that Boris can now present to his own cabinet and parliament. Little economic data as the EU held its Economic Summit where the Brexit deal was fleshed out. We’ll be heading into Day 2 of the Economic Summit today with markets keen for clues on what lies ahead for an EU which faces uncertainty and languishing growth.

GBP

A possible Brexit deal has whipsawed the Pound overnight, which oscillated between great optimism/strength and bitter reality/weakness. The Aussie has been trading back and forth across about a one cent range in the last 16 hours and at least for now we’re trading at just below 0.53. There’s reason to suspect we won’t be here for long however as the deal that Boris has cobbled together but must now be first be supported by members of his own coalition and then put to Parliament. You’d be forgiven for experiencing a sense of déjà vu as Theresa May also managed to get this far but failed at the final hurdle. Boris now faces the same challenges, however Parliament now quite literally is being forced to choose the deal on the table or no deal. With the final EU summit already underway it seems unlikely for another summit to be called purely to grant the UK another extension should this deal fail.  Boris also has to contend with the DUP’s opposition to the deal, as well Jeremy Corbyn imploring parliament to reject Johnson’s deal. Nigel Farage also threw his support behind a rejection of Boris’ deal, which in combination could be an insurmountable amount of political resistance for Boris. If the deal is approved, expected Aussie to plummet and conversely if the deal is rejected expect Aussie to continue to make gains on Pound Sterling.

NZD

A tight trade range is forming between the Australian and Kiwi Dollar as we remain locked in a 25 pip range. We had a strong day yesterday and but finished with selling pressure, pushing the Aussie down to previously held support levels. We’re currently trading at 1.0754 and appear to be moving up on the Kiwi currently. No data today from NZ, so expect the range bound trading to continue heading into the weekend.