Currency Update - Tuesday 27th August 2019

AUD

After a tough start to the week, AUD and other risk assets have staged a solid recovery with a calming of US/China trade tensions overnight. In stark contrast to the weekend’s inflammatory rhetoric, Trump said last night that Xi is a great leader, and that he welcomes his calm approach and desire for a deal. He said that he has gotten two calls from China, and that he will start negotiating shortly, and that he thinks he will make a deal. Whilst China played down the importance of the phone calls, markets rallied on the change in tone, desperate to put the brakes on what was looking like an accelerating trajectory into the abyss. The daily CNY rate fixed will also be watched closely, China is yet to use obvious currency devaluation as a tactic to counter growing US tariffs. The local data highlights for the week in tomorrow’s Construction Work Done and Thursday’s Private Capital Expenditure should provide a welcome distraction from markets’ current laser-focus on trade wars. Yesterday’s rollercoaster ride gives market participants a reminder of how quickly status quo can change and places emphasis on the need to be ready to take advantage when fleeting opportunity presents.

USD

AUD regained yesterday morning losses and then some, opening at 0.6773 this morning. This was largely a result of a de-escalation in trade wars, an ebb and flow pattern that is becoming familiar. US Core Durable Goods Orders fell m/m to -0.4%, worse than the expected 0.2%. The US/Iran situation also received a boost; Trump and Macron held a press conference at the G7 with the French leader suggesting there were hopes a deal could be made with Iran if the Iranian leader Rohani met with Trump. With the G7 now in the rear-view, focus shifts to the data with US Consumer Confidence due tonight, however Twitter blasts continue to loom large for risk sentiment. Firm resistance for AUDUSD remains at 0.6820, support not as decisive given yesterday’s aggressive dip.

EUR

AUD clambered back to Friday’s levels, reclaiming the 0.61 handle having briefly traded in the 0.59s during yesterday’s risk selloff. German data continues to disappoint; the German IFO survey continues to deteriorate with the August reading of 94.3 below the forecast of 95.1. In last minute G7 headlines, Trump said he has reached agreement with Merkel on a lot of things including trade. He added that he hopes there is no need to hit German cars with tariffs. European equities liking the positivity and registering gains, the Italian MIB up one full percent. More German data tonight with Final GDP for Q2.

GBP

The improvement in risk sentiment helped AUD back to Friday’s levels of 0.5540 after a 1.6% dip/recovery. With the UK enjoying a public holiday yesterday, the moves were entirely a result of trade war and Brexit headlines. As the G7 came to a close, UK PM Johnson spoke and again said the UK needed to leave the EU on October 31 though he was working hard to do a deal with the EU. He stressed the backstop has to be removed from any agreement and put the onus on the EU to compromise though also stated he was marginally more optimistic about reaching a deal. Light data to start the UK week, some Monetary Policy Committee talk as well.

NZD

AUD has reclaimed the 1.06 handle and is now back towards the top of the 3 month range. With no economic data to digest, the moves were attributable to offshore risk-related moves. The Kiwi data doesn’t begin until Thursday.


Today’s data

AUD:

  • 12.00pm RBA Deputy Gov Debelle Speaks

USD:

  • CB Consumer Confidence , Richmond Manufacturing Index

EUR:

  • German Final GDP q/q

GBP:

  • MPC Member Tenreyro speaks

NZD:

  • No data

CNY:

  • No data

FX CorpFX Corp Pty Ltd