Currency Update - Thursday 19th September 2019

AUD

The FOMC cut rates overnight 25 basis point cut and correspondingly we saw a 30 pip fall for the Aussie Dollar against the greenback. The Australian Dollar spent much of yesterday making gains on the USD after some dovish comments by the US Fed. Markets had dropped the likelihood of a rate cut from a certainty down to 54% and this helped give the Aussie a leg up. It was all for naught however as the US Fed went ahead with the cut and Aussie plunged, erasing yesterday’s gains and then some. Aussie unemployment data is up next today at 11:30am in what will be the turbulent release of major data to finish the week.

USD

The USD rallied overnight as the FOMC went ahead as predictably cut rates by 25 basis points. The FOMC comments added some strength to the USD as they came out seemingly more hawkish than expected. While future rate cuts are likely, the FOMC has cast doubt over another rate cut this year which markets had priced in. In the commentary the FOMC reaffirmed that their economic forecasts have remained largely unchanged. Powell went on to say that the rate cut decision is insurance against ongoing risks and not the beginning of a rate cut cycle. Trump predictably came out guns blazing tweeting about Powell’s lack of “guts”. This disagreement over policy at the highest level coupled with Powell’s resistance to the doves helped the USD surge against its major counterparts.

Euro

The Euro took some losses against the greenback as it absorbed the rate cut and the hawkish commentary out of the Federal Reserve. The cut came in as expected but the lack of commitment to more cuts caused the USD to rally and pushed the Euro lower. In a commentary from the Dankse Bank analysts advised that Euro still has some additional downside risk if indeed the US Fed attempts to steer the market away from expecting more rate cuts. Conversely, if they note the upside for the Euro if data weakens and the market starts to price more rate cuts.

GBP

Pound Sterling showed little reaction to the US Fed’s decision to cut rates by 25 basis points. Despite the renewed demand for the USD the Pound remained strong and flirted with 6 week highs against the greenback. The BOJ And BOE will both have monetary policy meetings this week although both are expected to leave rates on hold we shouldn’t expect too much impact. Meanwhile, the Brexit end-point remains broadly unchanged despite every effort from Boris’ political opposition. With that said, both a deal and no deal are possible at the end of October, as is the possibility of a Corbyn government by the end of 2019. The risk of a no-deal may have diminished of late but analysts warn that it has certainly not disappeared.

NZD

The Kiwi Dollar has shown a measure of resilience as we open today against the greenback. After slumping in the wake of the US Fed the NZD has staged something of a comeback after NZ GDP beat forecasts rising to 0.5% and 2.1% on a QoQ and YoY basis respectively. In other positive news trade headlines continue to come in optimistically with US-China diplomats gearing up for negotiation in October. Australian unemployment data remains the big data print coming up for today which if comes in strong could give the NZD another strong push north.