Currency Update - Wednesday 4th September 2019
AUD
In what seems like a rarity these days the Aussie Dollar opens higher after the RBA kept the rates on hold. While the rate decision to hold firm yesterday was factored in as an almost certainty what attracted attention were the RBA’s comments that have cast some doubt over the expected October rate cut. This has helped the Aussie squeeze higher against the greenback and Euro, helped by some weak US manufacturing data. The most salient line from the RBA’s comments reads: “The board will continue to monitor developments, including in the labour market, and ease monetary policy further if needed”. Westpac analysts – who were forecasting an October rate cut – commented that the problem phrase was “if needed” as it reveals that the RBA is indeed requiring justification to cut further as opposed to having a locked in strategy.
USD
Some worrying signs in the US economy have emerged overnight with a soft print of their domestic manufacturing. The ISM manufacturing index has historically been used as one of the best lead economic indicators and the data showing all major components in contraction territory is a major cause for concern. This also adds further pressure on the US Fed to continue cutting interests rates in a more concerted effort to stimulate the economy. This plays neatly into Trump’s rhetoric though with a mountain of tariffs constricting trade and weak internal data, the US may soon miss the off-ramp away from an increasingly likely recession. These worrying signs have sent the USD lower against all major currencies outside of Pound Sterling.
EUR
The Euro also benefited from the weak US data print and advanced on the USD up from multi year lows. It has some key resistance levels to break through first but it will be a welcome injection of strength for the Euro that has been put through the wringer of late. Outside of this the Euro will be looking ahead for some good news out of an array of European PMI data and other news signaling additional US rate cuts if it wants to break out of the bearish trend it is currently mired in.
GBP
Boris and his band of Tories have been rocked today after losing its majority in the House of Commons. MP Philip Lee crossed the floor during a speech from Boris Johnson and sat down with the Lib Dems. What does this mean? Firstly, there will almost certainly be a general election to determine if the UK does want Boris and secondly, Europe has previously stated that in the event of a general election, Brexit may be delayed and an extension given. In the wake of this result the Pound plummeted against the greenback and Aussie dollar. Political uncertainty will weigh heavily on the Pound but if indeed there appears to a shift away from a no-deal Brexit and indeed away from Brexit altogether, there should be a strong and prolonged recovery out of the GBP.
NZD
Much like the Aussie Dollar the Kiwi’s have made a nice recovery from recent multi-year lows. Benefiting from the RBA decision the Kiwi has crept up against the USD and the weak US data print helped the recovery. It’s a welcome reprieve for the Kiwi that has trading flat and range bound as of late. There are still some concerns over the US-China trade war after Trump made comments that while negotiations were going well, he wished he was “dealing with another administration”.