Currency Update - Monday 23rd September 2019

AUD

AUD starts this week on the back foot, suffering the ill effects of last week’s soft employment figures and the impact of deteriorating trade war related risk sentiment. On the weekend US President Trump labelled China a threat due to the rapidly increasing military, following this up later by declaring that Chinese agricultural purchases were not enough for a trade deal and he did not need one before the 2020 election. In response the Chinese delegation cancelled farm visits and returned home sooner than expected in another sign of strained relations. It will be a slow week of local data ahead with the highlight being RBA Gov Lowe’s speech tomorrow morning, markets will be keenly listening for clues pertaining to potential further interest rate easing at next week’s RBA meeting.

USD

Heavy selling last week sees AUD open this morning lower at 0.6770 as risk re-enters markets, trade tensions and US/Iran conflict the main drivers. Divided opinions amongst Fed members on the state of the US economy was evident at the weekend; Bullard saying that there are signs that US growth will slow “in the near horizon” and that manufacturing “appears in recession”, whilst Rosengren said contrarily that the US economy was healthy, monetary policy was already accommodative and additional stimulus was not needed, adding that further rate cuts may increase financial risks. A constant stream of US data will keep markets busy this week, but geopolitical developments (Trade and Iran) will likely continue to be the main driver for AUDUSD.

EUR

AUD lower against EUR, opening at 0.6145 today. Renewed Brexit negotiations have met headwinds with The Times reporting that the EU’s chief negotiator Barnier fears that negotiations have “gone backwards” since Britain sent position papers to Brussels two days ago. A diplomatic source was quoted as saying “The mood is dark. There just doesn’t seem to be any serious engagement form the British side.” A big night of European data ahead with PMI data from Germany, France and The Zone as a whole. With manufacturing and exports off pace, Services have been keeping the Eurozone afloat, but will it be enough for Germany to avoid a seemingly inevitable recession? ECB President Draghi is due to speak this evening as well, his opinion on market reaction to last week’s stimulus package could move markets if he thinks a repositioning of expectations is required.

GBP

AUD opening lower against GBP as well, a victim of risk sentiment, at 0.5424. To Brexit, and chances of a deal seem to have taken a knock on the UK side as well, with an FT article suggesting PM Johnson told colleagues that he did not expect to be able to secure a “legally operable deal” at the approaching EU meeting. MPC member Tenreyro to speak tonight.

NZD

NZD has shared a similar fate to AUD, falling on the back of declining risk sentiment. When compared with each other, the AUD maintains its recent advantage, opening this week at 1.0804. The RBNZ is in action later this week, with interest rates expected to be left unchanged at 1% on Wednesday morning.