Currency Update - Friday 8th March 2019
AUD
The ASX was the one shining light in the global equity markets yesterday, managing to close with gains of 0.3% when all other bourses closed in the red. Our local unit too, remains defiant in the face off heavy selling pressure and has managed to keep the 0.70 handle, for now. On the day, we had Retail Sales data which was following on from the shock previous report of -0.4%, the forecast was for a 0.3% read but actual disappointed once more at a mere 0.1%. Released at the same time however was the Trade balance figures for the month of January and the read was a beat, providing enough support to prevent the AUD from sliding sub 0.70. The pressure remains to the downside though and the majority of buyers will be seeing rates in the 0.69 range for the near term future. Risk appetite also suffered with the apparent failure of the DPRK/USA summit and the ongoing Sino/US negotiations seeming to have stalled. Chinese telco giant Huawei are suing the US government over the ban on the use of their products. Chinese Import/Export data and Trade Balance to come today, one would expect the risk here to also be skewed to the downside, exports are likely to have suffered in the wake of the trade tariffs for a start. AUD/USD needs to hold support at the 0.70 handle (although this seems unlikely) resistance comes in at 0.7040/50.
USD
The President’s legal issues continue and the Donald seems to be spinning many plates in the current environment; Michael Cohen has now filed against the Trump Organisation for legal fees resulting from the Mueller probe, the President though claims the payments do not amount to campaign finance violations (if they did happen!). The failure of the Korean summit will also be stinging the President, after he announced the love between him and the N.Korean leader only to be “disappointed”. The recent run of failures on immigration, the wall, trade tariffs and now the Korean denuclearization summit are adding up ahead of any attempt at reelection. The Donald needs a win if he is to continue to considered “winning”. Data wise the Initial and Continuing Jobless Claims were both upbeat and ahead of their forecasts, Non-Farm productivity was at 1.9% vs 1.5% and the ADP print was near the money ahead of tonight’s NFP. The Fed’s Brainard (Dove) called for a softer approach, sighting global concerns and the increased risk to the US economy as her reasons. It seems every central bank around the world has a very similar rhetoric at the moment, and none of them are very positive! A plethora of data from the US tonight, the highlights being the NFP and the Unemployment rate.
EUR
The ECB delivered a dovish tone as expected overnight, amending growth forecasts and announcing new long-term re-financing operations. These are loans made to banks to keep credit flowing to businesses within Europe. This is in the hope an already fledgling economy doesn't end up in another credit crunch scenario. This serves to undermine value in the Euro, hence the AUD's appreciation overnight. The USD punched a whopping great whole in the Euro and sits at important resistance this morning at 1.1185. A strong Non-Farm Payrolls this evening could see a collapse of the recent range and send the Euro reeling, a big win for AUD/EUR if that happens. The ECB also made it clear that interest rates are expected to remain on hold until 2019. Also released was EU GDP. Q4 GDP printed as expected at 0.2%, the y/y figure fell to 1.1% (1.2% exp). Draghi made it clear that risks were to the downside, growth forecast for 2019 were marked down from 1.7% to 1.1%, inflation expectations were also cut from 1.6% to 1.2%. This had to happen as policy guidance was totally out of whack with reality. Markets will continue to digest the change in policy and outlook from the ECB over the coming weeks, the Euro perilously close to capitulation in the event of strong U.S data.
GBP
AUD/GBP continues to trade in a tight range below 0.54. The AUD is making hard work for itself with weak economic data (Retail Sales yesterday were a shocker) and widely held concerns/reports of an imminent recession. It is worth pointing out that entering a per-capita recession, is not the same as an economic recession. Much depends on the durability of the housing market and whether employment can remain buoyant. According to headlines the EU is sceptical a deal can be made before the March 21-22 summit, with negotiations stalling it looks likely an extension to Article 50 will be made later in the month. The EU will be making a new Irish Backstop offer to the U.K according to sources. Nonetheless, GBP fell against the USD as the big dollar looks very close to breaking a long held range against the majors.
NZD
The Kiwi held up pretty well against the USD considering the onslaught overnight, NZD opening at 0.6750 and 1.0384 against the AUD. Risk sentiment was squashed, with equity markets falling across the globe. Much of the Kiwi's fate remains in the hands of the USD, which is close to a break out. If the Euro continues to weaken, the Kiwi could be in for further losses against the USD.
Today’s data
USD:
Non-Farm Payrolls