Currency Update - Thursday 5th December 2019

AUD

US and China trade negotiations have seemingly taken a step forward and optimism has returned to the market as Phase One of the agreement edges closer. Risk assets took a jump yesterday however the Australian Dollar needed to shrug off some sluggish GDP figures that came in yesterday that came in 0.1% under forecast (0.4% print). Some strong Chinese data also helped the Aussie Dollar with activity in the Chinese services sector swarming to a seven-month high in November in a private survey, hinting that a short-term stabilization is occurring in the economy. It’s a big day of data ahead with Australian Retail Sales and Trade Balance out at 11:30am this morning. We are also in the middle of OPEC meetings that while closed to the public, typically include officials speaking with reporters that is accompanied by a formal statement covering energy-related policy shifts. With 40% of the world’s oil supply accounted for under OPEC shifts in production levels can have a significant impact on oil prices.

USD

The Australian Dollar bounced back from sluggish GDP figures yesterday to reclaim the 0.6850 handles in the overnight session as trade optimism returns to the market. The fickle nature of the markets is on full display today as despite the heated rhetoric between the two superpowers, reports citing ‘sources’ that confirm a deal is close. This could simply be US officials attempting to game the system and that despite the change in tone a deal is no closer than it was 24 hours ago. Whether this is another false dawn or not we’ll certainly find out soon with the 15th of December deadline on the horizon. On the data front, USD ADP Employment showed that 67k jobs were added in November, down from 121k and well below expectations of 135k. US Markit Services PMI for November came in on schedule at 51.6. US ISM Non-Manufacturing for November meanwhile fell to 53.9 down from 54.7 and badly missing expectations of 54.5. A slew of data misses prompted selling pressure on the USD and helped make the Australian GDP miss something of a non-factor.

EUR

With November in the rearview mirror we’ve finally seen a break above the 20 pip trading range the Australian Dollar has been mired in. It’s not much of a breakout but we’re finding bids in the 0.6180 range. European equities opened positively despite some strong words from the Chinese Foreign Ministry who said that no one should underestimate China’s resolve to safeguard their interests. Despite the strong words, optimism is the word of the day and the Australian Dollar has gotten the better of the Euro as risk assets enjoy the renewed bidding pressure. On the data front we saw the release of November service PMI numbers with Spain kicking things off at 53.2 (51.9 expected). Italy came out soon after with a 50.4 reading (51.2 expected) while France offered up 52.2 (52.9 expected) and only the industrious Germans beat expectation with a 51.7 reading above the 51.3 expectation. The EZ measure came in at 51.9 ahead fo the 51.5 expected while UK services joined the Germans in beating expectations with a reading of 49.3 ahead of the forecast of 48.6. More low impact data out this evening.

GBP

AUD/GBP short positions have been squeezed hard as a Tory victory is seemingly more and more likely with each passing day, pushing the Australian Dollar down to 0.5225 at the time of writing. However it’s worth remembering that if the last few years have taught us anything it’s that while polls may be an indicator, they are not infallible. According to the Telegraph Boris Johnson’s lead has slipped to under 10 points and the election could very well be far tighter than a cursory glance may make it appear. Time will tell but should the Corbynites make it in expect a spectacular sell-off of Pound Sterling.

NZD

The fireworks appear to be over with the Australian Dollar and Kiwi finding themselves locked in a much tighter trading range with markets trading AUD/NZD at 1.0492 at time of writing. The recent destruction of the Australian Dollar may have run out of steam however this morning we have Governor Orr speaking so prepare for movement in either direction based on the dovishness or hawkishness of his commentary.