Currency Update - Wednesday 11th December 2019

AUD

Trading volume is light as we approach the pointy end of the week and traders are exercising caution over the prospect over additional US tariffs hitting China which has pushed the AUD slightly lower across the board. Yesterday morning Governor Lowe weighed in on Australian International Payments where he advised that while our recent GDP outcome was broadly in line with expectations, there is a surprising weakness in consumption. He went on to say that while he is confident consumer spending will increase, high levels of debt are weighing on consumption. The House Price Index also came out yesterday recording a strong performance as residential property prices rose 2.4% ahead of the 0.5% expected. Chinese CPI came in broadly as expected at 4.5% while Chinese new loans had a big jump up to 1.4 trillion Yuan ($197.47 billion USD). Rising debt in China comes as no surprise as the Chinese government seeks to help breathe life into a sluggish domestic economy. Expect a relatively quiet day with little major data outside of Westpac Consumer Sentiment out later this morning.

USD

Light trading volume and several key risk events have helped traders decide to trim risk positions and the Australian Dollar is slightly down with markets hanging onto the 0.68 handles at the time of writing. Initial reports relating to the trade deal are that the US is waiting for Beijing to make the first move. There has been talked the Trump administration will not press ahead with additional tariffs, provided that China commits to making agricultural purchases. This is an encouraging sign on one hand in so much as there are some clear conditions of how to proceed. However it is important to note Beijing’s unwillingness to appear weak could mean they will wait on Washington to make the first move and if neither side makes a concession, we’ll be entering next week with a fresh round of tariffs, no deal and no plan on when the trade war will begin to de-escalate. USD 10-year Bond Auction out later today as the only moderate impact piece of data in a day that should see the Aussie constricted to a fairly tight range against the USD.

EUR

The Australian Dollar has broken out lower against the Euro’s recent trading range, as markets attempt to consolidate above the 0.61 handles. There were some encouraging signs for Germany with the European powerhouse recording a sharp uptick in the latest ZEW Indicator. The indicator, used to gather insight from institutional traders, has risen to 10.7 points which is the highest value since February 2018. The surprisingly positive assessment of the country in a technical recession rests on the hope that German exports and private consumption will develop better than previously thought. This hope appears to be coming from the higher than expected German foreign trade surplus in October, alongside relatively robust economic growth in the EU in the third quarter in addition to a stable German labour market. Ahead today we have no major data to report and all eyes will be on the FOMC tomorrow and ECB Friday.

GBP

Another day, another poll and the Tory’s are still holding onto their lead against Labour. The lead is dwindling however as Boris Johnson does his best to avoid losing his unlosable election, dodging damaging headlines and a renewed Labour offensive over Boris Johnson’s character and his political direction. The Australian Dollar continues to fall against Pound Sterling with markets reaching a low of 0.5157 before a more negative poll for the Tories helped push us back up to 0.5185 at the time of writing. A range of UK data was released yesterday with October GDP falling flat, missing expectations of a 0.1% gain while Industrial Production was up 0.1% to miss an expectation of a 0.2% gain. Manufacturing production rose 0.2% to beat expectations of a flat result though the October trade deficit was higher than expected. Little data to report for the rest of today so expect polling to largely dictate AUD/GBP until the election results in.

NZD

The Australian Dollar continues to trade flat against the Kiwi Dollar with markets holding on above 1.0405 as a floor appears to form. Nothing out today so expect more sideways movement for the rest of today.