Currency Update - Tuesday 10th September 2019
AUD
The Aussie Dollar continues to benefit from the positive risk sentiment, continuing to advance on the USD and hitting 5 week highs. The Aussie Dollar has been creeping higher ever since the turn in risk sentiment and in the absence of news there has been little reason to dissuade traders putting in their bids. There is an air of optimism in the US-China trade negotiations with the most recent comment out of the US Treasury Secretary confirming that the Trump administration is ready to have a conceptual agreement with China when they meet in October.
USD
USD weakness abounds as traders’ fears cool off and the never-ending chase for yields pushes them back into risk assets and out of USD. Perhaps the most significant news was that the inverse yield curve has righted itself and now 10-year bond yields have crept up to 1.63%, marginally ahead of 2-year yields. US Treasury Secretary Mnuchin spoke in early NY trade saying that US will enter into a deal with China if a good deal can be made. This marks a continuation of positive signs of progress towards a long term resolution in the US-China trade war. A key aspect of the negotiations according to Mnuchin will be Chinese currency manipulation and whether this will be a stumbling block or not remains to be seen.
EUR
The Euro also continues to benefit from the emerging risk off sentiment as it hits fresh 2 day highs. Some encouraging signs came from the German government hinting at the likeliness of extra fiscal stimulus via an adjustment in the 2020 budget to increase public investment. This helped give a boost to German 10 year bond yields. There was some reflection of the more positive sentiment in the sentix Investor Confidence data which came in strong. All in all, there isn’t much news but the conditions are strong for the Euro to recover some of the recent losses.
GBP
The GBP continues to march upwards as the tug of war between Boris Johnson’s Tory government and their political opponents across the aisle continues. We now have confirmation that Parliament will be suspended from Monday the 9th to October 14th. While the bill was passed which will force Boris’ to formally request an extension from the EU he now has some opportunity to seek a legal way to escape this obligation and therefore get the UK back on track towards a no-deal Brexit. Despite this markets don’t seem to have much faith in Boris to engineer a no-deal Brexit as the Pound continues to appreciate and move away from the likelihood of a no-deal Brexit. Unless Boris can somehow make a no-deal Brexit happen prior to next general election expect the Pound to slowly recover.
NZD
The New Zealand Dollar has extended its run amid positive risk sentiment and without negative news out of China-US. The hopes of Chinese stimulus has also acted to reassure traders that China’s slowing economy will not slow too much and this has also helped fostered a more risk on the sentiment that pervades the markets. Throw in the increasingly likely US-China trade deal and the conditions are ripe for NZD to continue making gains on the USD and recover some of the horrific losses they’ve endured as of late.