Currency Update - Tuesday 17th December 2019

AUD

The initial trade deal between US and China that was declared this week has had a predictably positive reaction from the markets and the Australian Dollar has been a chief benefactor. The deal which includes a reduction in tariffs and an increase in American exports to China have encouraged traders to come back to the table who were previously exercising caution in the event of a no deal, twitter meltdown or otherwise volatile reaction as we headed into the final week of the initial trade deadline. Surprisingly the reaction from the Australian Dollar to the positive Chinese Industrial Production data that came in well ahead of expectation (6.2% to 5.1 expected) was relatively muted with an initial spike that quickly unraveled. Whether this comes from some skepticism of Chinese data or the underlying low interest rates set by the RBA (with the expectation of further cuts) remains to be seen. Ahead today we have the RBA Monetary Policy Meeting Minutes out this morning in what is shaping up to be a relatively light day of data. This should be a relatively high impact with traders looking for insight on exactly when the expected cuts in 2020 should be going ahead.

USD

The Australian Dollar has been given some life with the trade deal now in the rear-view mirror and is well supported as markets open this morning at 0.6884 against the USD. US equities are kicking goals with S&P 500 outperforming as the trade deal and Boris Johnson effect does the rounds around the world. The well-received Chinese industrial production plus retail sales report has also helped the bullish sentiment heading into the holiday season. With soaring equities, the USD was broadly sold off as traders get their funds for final Christmas shopping and helped the Australian Dollar stay strong. On the data front US Manufacturing PMI for December dipped slightly to 52.5 from expectations of no change 52.6 while the Services PMI rose to 52.2, up from 51.6 and better than expectations of 52.0. This left the Composite PMI at 52.2, up from 52.0. Released shortly afterward, the NAHB Housing Market Index rose to 76 in December, up from 71 and better than expectations of 70.0. A quiet day of trading ahead with minimal data expected.

EUR

The FTSE 100 is booming today as the Australian moves sideways on the Euro with markets hanging on around 0.6177 this morning. European equities joined the party following a triumvirate of US-China trade deal success, Boris Johnson’s dominant election and strong Chinese production figures that were an early Christmas present for the bulls. Euro has benefitted from USD weakness which is why we’ve moved sideways against the Euro despite the Australian Dollar’s strength. On the data front, we’ve seen European PMI numbers for December. France kicked things off with manufacturing at 50.3 (51.5 expected) and services at 52.4 (52.1 expected). Germany was next with manufacturing at 43.4 (44.6 expected) and services at 52.0 which matched the forecast. The EZ reading saw manufacturing drop to 45.9 (47.3 expected) with services at 52.4 (52.0 expected). A quiet day ahead with only some low impact trade data out this evening for the Euro

GBP

The bulls are getting a small reprieve against Pound Sterling with markets offering some limited correction against the recent election result that prompted a massive spike in GBP strength. The Australian Dollar has traded its way back up recovering a quarter of the losses as markets attempt to consolidate around 0.5162. Disappointing manufacturing data out of the UK encouraged the correction coming in at 47.4 (49.2 expected) with services at 49.0 (49.5 expected). A relatively quiet day ahead with GBP earnings data out this evening and some minor low impact data later tonight.

NZD

The Australian Dollar has staged something of a comeback this week against our Kiwi friends with markets moving up to 1.0433 at the time of writing. In the absence of data, traders have given the Australian Dollar the slight edge off the back of the Chinese production data. ANZ Business Confidence is out later this morning so if you’re looking to buy or sell NZD today get your market orders in early to benefit from what should provide some decent movement in the pair.