Currency Update - Tuesday 3rd December 2019
AUD
Heavy selling has hit parts of the market as new reports have emerged that President Trump was planning on increasing tariffs on China as scheduled if a deal has not bene reached by the 15th of December. Risk sentiment wasn’t helped when Trump also announced via twitter that Argentina and Brazil will have tariffs placed on steel and aluminum imports as a response to the major currency devaluations that have taken place. On the data front Australian Building Approvals had a major miss coming in down 8.1% smashing expectations of a 1% drop. Yesterday also featured a miss on Company Operating Profits q/q coming in at -0.8%, well ahead of a 1% expectation. It wasn’t all bad news however with some uplifting Chinese manufacturing data coming in ahead of expectations with the strongest improvement since December 2016. Ahead today we have the RBA cash rate decision which is largely predicted to be held at 0.75%.
USD
President Trump has coupled the new South American tariffs with pressure on the Fed to continue reducing rates to help keep the US competitive and this has led to a broadly weaker USD, helping the Australian Dollar recapture ground above 0.68. Equity markets were hit hard overnight after it emerged that tariffs on China were set to apply in the event of a no-deal by December 15th. Adding to US pain came in the form of a soft ISM release that helped the USD decline across the board, citing weakness with key components including Employment, Price Paid and New Orders. Also released was October Construction Spending that fell by 0.8%, a far cry from expectations of a 0.4% gain.
EUR
Despite European equities being rocked by moves in the US, AUD/EUR remains largely subdued, continuing the tight range trading that has dominated the past few weeks of trading with markets trading at 0.6154 at time of writing. After an initially positive start the major European bourses were around 0.5% higher in early trade before US Commerce Secretary Ross confirmed that Chinese tariffs would proceed if no deal is reached which sent European equities far into the red. We also saw the release of European manufacturing PMI numbers with wins recorded for Spain, Italy and Germany all beating expectations. France came in slightly behind at 51.6 vs 51.7 expected. New ECB President Lagarde said that growth in the EU remains weak largely as a result of global factors with the global outlook sluggish and uncertain. Little news from Lagarde in terms of future monetary policy.
GBP
The Australian Dollar continues to make gains on Pound Sterling as the UK Labour surges in the polls and the Tory lead dwindles with AUD/GBP breaking higher to 0.527 at the time of writing. Despite UK Manufacturing PMI coming in ahead of expectation Sterling remains under pressure by the Antipodeans. Boris Johnson who has walked into a general election with a luxurious lead over the Labour party has since seen his lead whittled away as criticism mounts over Johnson’s clumsy attempts to exploit the London Bridge attack for political gain. Meanwhile, Labour has cut the Tory lead with the party at its highest level since the start of the campaign. With markets appraising a Tory win as good for business the prospect of a Labour government has prompted the selling pressure on Pound Sterling.
NZD
The Australian Dollar is attempting to consolidate just below 1.049 as the Kiwi Dollar goes from strength to strength. After a year defined by heavy losses the Kiwi has mounted a parabolic comeback and the confidence that has filled our neighbor’s currency sales has seemingly no obvious end in sight.