Currency Update - Thursday 21 November 2019
AUD
Concerns over the progress and timing of any potential China-US trade has seen risk sentiment deteriorate overnight while the USD strengthens. The Global Times editor tweeted that “few Chinese believe that China and the US can reach a deal soon” and that ”China wants a deal but is prepared for the worst-case scenario, a prolonged trade war”. One Chinese State official commented on the negotiations stating that China would offer no more concessions to the US to try and secure a phase one trade deal”. Another stumbling block is that China is pressing for a more extensive rollback of previously imposed tariffs while the Trump administration counters with their own increasing demand. With President Trump embroiled in a rapidly deteriorating political situation with the impeachment inquiry underway, there is a reasonable position to be had that the trade negotiations may take some time to find a conclusion. Falling optimism has produced selling pressure on the Australian Dollar across the board. No significant AUD data to report today and for the rest of the week.
USD
The Australian Dollar was approaching highs of 0.6840 yesterday before the Australian Dollar was turned on its head with markets desperately trying to hang onto 0.68 at the time of writing. Stemming from the turn in sentiment US equities and yields dipped lower with the S&P500 posting its biggest losses in six months. With the December deadline for Phase One of the deal seeming less and less likely the cautious optimism that has been pushing risk up of late is now looking much more like caution than optimism and risk has fallen accordingly. Also complicating matters is the impeachment inquiry storm cloud brewing above Donald Trump’s head. With Ambassador Sondland naming Trump as directing the alleged quid pro quo arrangement with Ukraine Donald Trump seems unable to make this go away. On the data front, we had the latest Fed minutes out this morning. At the last meeting, the US central bank cut rates, meeting forecasts, but the message seemed to be that no more cuts were likely in the near-term. The minutes have largely confirmed this with Fed officials seeing little need for further rate cuts.
EUR
The negative risk sentiment has hurt the Australian Dollar across the board and against the Euro AUD has fallen to 0.6143 where markets are currently attempting to consolidate. President Trump has threatened to slap ‘even higher tariffs’ on Chinese imports if an agreement is not reached and to add insult to injury the US Senate has passed a bill backing the human rights of the people of Hong Kong. With tough rhetoric likely incoming from China traders are trimming their risk positions which have resulted in selling pressure on both EUR on AUD with the Aussie Dollar taking the brunt of it. On the news front, the ECB stability review showed “prominent downside risks to growth” while warning of excessive leverage and bad loans. We also have the ECB Monetary Policy Meetings Accounts out this evening at 11:30pm.
GBP
The turning risk sentiment has produced a sell off on the Australian Dollar which fell to lows of 0.5254 before we’ve corrected it to 0.5263 at the time of writing. Boris Johnson delivered a familiar sounding promise to the UK yesterday that the UK would be out on January 31st and that he would secure a new trade deal by the end of the year. The promise was made during a testy debate with Labour leader Jeremy Corbyn with his opponent arguing for another referendum. Little news or data for the rest of today while we wait for the big Euro and UK PMI data tomorrow evening.
NZD
The selling pressure hitting the Aussie has extended to the NZD though the Kiwi Dollar has seemingly gotten the better of it with the Australian Dollar falling to 3-month lows against the Kiwi. An otherwise quiet day on the data front with little else out to finish the week.