Currency Update - Monday 26th August 2019

AUD

An escalation of the US/China trade war at the weekend has the AUD starting the week on the back foot, dipping heavily against the majors just after this morning’s open. On Friday Chinese authorities confirmed the imposition of further tariffs on US goods with soy beans and crude oil imports targeted, which prompted inflammatory comments from US President Trump where he announced he would hike tariffs to 30% as of October the 1st and he also cast doubt on the continuation of US companies doing business in China. Equities were also hit hard with the quickly-worsening risk environment, the S&P 500 giving up 2.3% and local stocks set to follow when markets open later this morning. The local economic data isn’t due until Thursday, so AUD will continue to be at the mercy of the trade war. With the US/Chin relations seemingly at a new low point, will China weaken CNY at the rate fix at 11.15am this morning?

USD

AUD heavily sold in the wake of the weekend’s headlines, opening at 0.6740 only to quickly give up the 0.67 handle to settle around 0.6690, about 1% lower. Fed speak from Jackson Hole indicates a rate cut at their Sept meeting is all but certain, Bullard commenting that it is prudent to take out more insurance (rate cuts) in the face of growth risks to the downside and that a 50 point cut should be considered. Fed Governor Powell tried to paint a more optimistic view whilst still preparing markets for a shift in rates saying the economy is in a “favourable place” but faces “significant risks… Our challenge now is to do what monetary policy can do to sustain the expansion so that the benefits of the strong jobs market extend to more of those still left behind, and so that inflation is centred firmly around 2 percent.” Trump’s twitter account was in overdrive, slamming the Fed’s inaction with “we have a very strong dollar and a very weak Fed… who is our bigger enemy, Jay Powell or Chairman Xi?” The Don then turned his focus to China directly, tweeting “We don’t need China and, frankly, would be far better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.” Looks like trade wars are going to get worse before they get better. To cap off a poor weekend for the US President, the Iranian Foreign Minister received a shock invitation to the G7 meeting in France, Trump refusing to confirm he was caught by surprise. To the data, and the US will offer a steady flow this week, kicking off with Core Durable Goods Orders tonight. Support for the AUD now at the 7th August low of 0.6677.

EUR

AUD down 1% on open this morning in reaction to the weekend’s risk moves (see above), settling just above 0.6000. No European data to speak of, but on Brexit news the European Commission said that the EU stance on Brexit was united in that they were open to engage with the UK on any concrete proposal that was compatible with the Withdrawal Agreement. Data from The Zone is thin this week with only medium impact data due on Thursday and Friday.

GBP

AUD opens at 2-month lows this morning in the wake of heavy safe haven flows, trading at 0.5464 at time of writing. The limelight was firmly on US/China headlines and Fed speak from Jackson Hole (see above), however there was some positivity surrounding Brexit; Johnson said that the Brexit deal “is not going to be easy” whilst Barnier said that the EU is ready to listen to “realistic” UK proposals. Nice to hear something positive for once! A light week of data ahead from the UK begins with a public holiday today.

NZD

AUD opens lower against NZD, trading at 1.0540 at time of writing, having recovered from an earlier dip to 1.0502 in the wake of the early risk flows. NZD Trade Balance came in at -685m, well below expectations and helping the AUD recovery. Thursday’s ANZ Business Confidence numbers will be the data highlight for the week.

Today’s data

AUD:

  • No Data

USD:

  • Core Durable Goods Orders m/m

EUR:

  • German Ifo Busienss Climate

GBP:

  • Public Holiday

NZD:

  • No data

CNY:

  • No data

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