Currency Update - Friday 4th October 2019

AUD

Local equity markets suffered yesterday, the ASX down 2.2% as investors look for safe havens and government bonds in the face of global recession fears sparked by the recent downturn in US economic data. In the absence of local economic data, the AUD was still able to take advantage of some US weakness overnight through a mix of speculative profit taking and alternative buying interest. With China still on holidays, the data today comes in the form of local Retail Sales figures for August which are expected to bounce back to 0.5% after last month’s poor result of -0.1%. We also get a looks at the RBA Financial Stability Review report. With US employment numbers tipped to disappoint tonight (see below), there could be opportunity for AUD to continue this rally into the weekend’s close.

USD

AUD has clawed its way higher as the chances of a Fed rate cut on 31 October increase to 90%, opening this morning at 0.6745, just shy of this week’s opening level. Overnight the services version of the US Purchasing Managers Index followed the lead of disappointing manufacturing version earlier in the week, printing at 52.6 (55.1 expected). Treasuries were bought heavily with 2yr yields falling by 9bps while the prospect of lower rates giving a boost to U.S equity markets with the S&P 500 climbing 1.1%. Tonight we have the main non-farm employment numbers from The States, which face a tall task to overcome the poor preliminary numbers from earlier in the week. The AUD has an opportunity to finish the week strongly, spurred on by the recent bout of US data misses. Support now sits at 0.67 with resistance around 0.6820.

EUR

With USD strength waning, the AUD has garnered buying demand, resulting in gains against EUR overnight and an opening level of 0.6148 this morning. Weak Services PMIs from Europe overnight gave an assist, with all of the main economies disappointing with the rare exception of Italy. As the 17 Oct deadline for a Brexit deal fast approaches, EU President Tusk directed a message to UK PM Johnson, that the EU remained open but unconvinced of his recent proposal. In the absence of a deal, the only legal option forward would be for the UK to request another extension to the current 31 Oct Brexit date. No economic data from the EU tonight.

GBP

AUD also rallied against Pound overnight, opening at 0.5467 this morning. With no economic data to get stuck into, Brexit headlines dominated the trading. Irish Minister Coveney said that there has been “progression” in the UK’s position but that there will be no deal if the UK’s current proposal is the final one. Irish PM Varadkar went on to say the UK proposals are welcome but fall short in a number of aspects. Further Brexit comments coming with Johnson said to have a Plan B if his Brexit deal is rejected with a headline stating he had not ruled out accepting a backstop with a time limit. With less than two weeks until a deal needs to be accepted by all parties, time is quickly running out. No economic data due from the UK tonight, so Brexit to remain firmly in focus.

NZD

AUD opens flat against NZD at 1.0706, with both Antipodeans benefitting equally from profit taking and enjoying the recent US weak data. With no data from across the ditch, local Retail Sales figures today will drive the moves in AUDNZD.