Currency Update - Friday 9th August 2019
AUD
The embattled Aussie Dollar has been the benefactor of a turn in risk sentiment. An improved appetite for risk has helped US equity markets reclaim all of the trade war-driven losses and sent the AUD to 1-week highs against the greenback. This shift in the wind has been largely because of the yuan being fixed above 7.00 for the first time yesterday. While this was slightly below market expectation China will be carefully watched to see if they elect to fix their currency lower in line with projected models. If such a fix went again, expect further strength to the AUD as this would encourage markets to incorporate more risk assets. In other news, we have Governor Lowe speaking at this morning where we expect him to provide an update on the Reserve Bank’s economic forecasts before the RBA’s monetary policy statement out at 11:30am.
USD
China and the United State’s ongoing trade war has taken a somewhat quieter tone after the latest exchange. The US plans to delay licenses to do business with China’s Huawei and this was in retaliation for China’s decision to hit US farmers by halting crop purchases. In spite of this, the mood is lighter on Wall Street as major indices moving up higher and US government bond yields rebounded. On the data front, US jobless claims came out at 209,000 which was an improvement on last week’s reading of 215,000.
EUR
A relatively quiet front with EUR and USD missing major data releases which have restricted their trading to a fairly tight range. Overall the Euro has performed well against the greenback, gaining 1.2% and appears to be consolidating into a more stable price range. Much of these gains stem from market expectations on the monetary policy of the US Fed. In spite of this, there is still weak European data to consider as evidenced most clearly in the recent contraction in German industrial production by 2.5%. Data points such as these open the door for a more accommodative policy response in September and as expectation for this grows for this, so too does the Euro’s trading upside.
GBP
Little good news to report on the GBP front with little data and nothing but a continuation of the all too familiar Brexit rhetoric by the Boris government. A recent poll by Reuters with economists suggests that Pound Sterling is not out of the woods yet as Britain lumbers inexorably towards the October 31st Brexit deadline. Pundits attempt to forecast what the projected fallout might look like. Many economists suggested that the pound could fall to $1.17 and $1.20 against the greenback in the event of a disorderly no deal Brexit. In contrast, if a deal is achieved provides a much healthier outlook with a 12 month expectation of $1.33 against the USD. The most recent slump in the Pound came off the back of the comments of senior advisor Dominic Cummings who warned that even in the event of a vote of no-confidence in the PM, even this would be insufficient to stop a no-deal Brexit.
NZD
The RBNZ has reaffirmed its decision to shock the markets with its 50 basis point cut with Governor Orr commenting that “too much too soon, is better than too little too late”. This could prove auspicious as shortly after the RBNZ’s decision we saw two other central banks cut their cash rates, confirming that economic slowdown concerns are shared globally. Orr went on to say that NZ is in a great position to face the growing economic headwinds and the rate cut was essential to NZ’s ability to withstand what is to come. To provide some meager support to NZD strength Orr did also seem to confirm that there not be another 50 basis point cut at the next meeting.