Currency Update - Friday 13th September 2019
AUD
The Aussie Dollar is doggedly holding on to recent runs on the greenback and Euro after taking some losses overnight. The ECB was the big focus with Draghi coming out guns blazing, cutting rates to -0.5% and announcing an open ended QE announcement of €20 billion per month. Markets liked Draghi's package and AUD took some losses coming off of recent highs and falling over 1% against the Euro. Luckily for the Aussie, overnight trading saw us get to the highest level since July so we had some winnings already in the bank to soften the blow. The USD also took a swipe at us after hitting CPI expectations and exceeding month to month expectations. More broadly there’s still a very much pro trade sentiment underpinning the Aussie Dollar at the moment. This follows a day of good faith gestures between US and China including the US delay of tariff hikes by 15 days.
USD
The US inflation report was mostly as expected but soon enough reports were coming out of the US of a limited trade deal with China which saw a bounce in equities and risk assets across the board. CAD took the USD to task but the big winner was the EUR in the wake of Draghi’s stunningly dovish move to slash ECB rates to -0.5%. Reports from the Chinese Commerce Ministry have mentioned that new purchases could include agricultural products out of the US. This was enough for the US to delay tariff hikes and further de-escalate the trade war that is quickly turning into more of a mild trade dispute ahead of the meeting in Washington next month. Retail Sales are out tonight which will be significant and could provide either pressure or relief for the increasingly criticized US Fed.
EUR
Mario Draghi has stolen the show with an unexpected interest rate cut to -0.5% and a reintroduction of a QE program that involves the purchase of €20 billion worth of bonds per month. The official statement went on to say that the €20b of monthly bond purchases will continue “as long as necessary”. Ultimately the size of the QE was on the lower side of expectations and this temporarily allowed AUD higher despite the inherently inflationary nature of QE. The ECB also lowered their growth forecasts for 2020 and inflation forecasts for 2020 and 2021. The rally at least on the USD was short lived however as details of the QE package came to light. The package is much more open ended than initial reactions thought and the gains the Euro made on the USD quickly reversed. The Euro still held onto gains against the Aussie Dollar as Draghi downplays fears of a Euro-area recession though reaffirming the role of fiscal policy.
GBP
All focus was on the Euro and USD overnight so little news overnight for Pound Sterling. GBP opens lightly higher on the USD and took a hit as Draghi’s plan was revealed and Euro pushed higher. As a no-deal Brexit becomes increasingly unlikely we’ve seen bidding pressure on the GBP unwind to stage an impressive rebound. The UK has CPI figures out next week so expect GBP news to be Brexit oriented until then.
NZD
The Kiwi’s recent improvement against USD took a knock overnight as USD CPI figures came in strong which helped push the Kiwi off recent 4 week highs. AUD has capitalised on the NZD weakness, now above the 1.07 handle.