Currency Update - Friday 10th January 2020

AUD

The seesawing risk dynamic turned positive overnight, with gold’s gains halted.
Equities continued their march higher and we saw the US Dollar Index make new
intra-month highs. The Australian Dollar failed to benefit from the risk-on
move in markets, seeing limited movement across the majors. Yesterday’s stellar
Australian Trade Balance evoked a muted reaction at best, proving that it is
all eyes on the Middle-East for the time being. Given the US and Canada have
come out overnight confident that the Ukrainian plane was shot down by Iranian
forces, it will be interesting to see what kind of response is evoked from the
US leader. Today we have the November Retail Sales locally, with interest
existing around a possible bounce from the 0% read seen in October. Expectations
of a 0.4% seem a long way from the previous read, especially against the
backdrop of recent retail store closures.

USD

AUD/USD bounced off the canvas but remained under heavy pressure overnight despite the
mild shift in risk sentiment. The trade low of Thursday was 0.6849, which held
but for how much longer is the question. Further demand is expected ahead of
0.6825 while offering interest remains ahead of 0.69. Risk has crept back into
the market with equities doing well and despite some mixed employment data it
appears as if the lingering concerns over the Middle-East are keeping the USD
strong. The mixed data came in the form of US weekly jobless claims with
initial claims falling to 214k to beat estimates of 220k though continuing claims
rise to 1.803 Mio to fall short of expectations of 1.720 Mio. A quiet day on
the data front today but when Saturday rolls around we have a slew of high
impact data with Average Hourly Earnings, Non-Farm Employment and Unemployment
Rates all set to hit the market in the early hours of the morning. Great day
for market orders in both directions with the potential for Saturday to be a
volatile day of trading.

EUR

As the prospect of war comes off the table traders have cautiously returned to the
table with limited buying of risk assets. AUD/EUR has traded largely sideways
with markets trading AUD/EUR at 0.6175 at the time of writing. The Euro was
once again frustrated by mixed data with German trade balance revealing a
drop-down to €18.3 billion as exports fell by 2.3%. There was some better news
on the industrial production front which grew by 1.1% to beat the forecast of
+0.8%. For German imports, they absorbed a 0.5% drop and when combined with the
poor export result we can see an indicator of weaker demand. Ahead today we
have a quiet one for the Euro and with limited bids in either EUR or AUD we can
expect the more sideways movement to finish up the month.

GBP

The Australian Dollar has found itself marginally higher than it started yesterday
morning after a decent 40 pip rally was largely erased following news of the
latest Brexit news. The EU’s Barnier said that the level of access of British
products to UK markets will depend on the UK ambition to keep EU standards.
With weak recent data out of the Eurozone frustrating monetary policy makers,
Europe will not have the luxury of playing hardball with the UK over trade.
Outgoing BOE Governor Carney was speaking at The Future of Inflation Targeting
in London. He said that the bar to changing the UK policy framework is high and
that the BOE has an equivalent 250 basis worth of policy space. The policy
tools included rate cuts, forward guidance, and QE. He added that the present
weakness in the UK economy could prompt a response in the near term. A quiet
finish to the week with no significant data to report.

NZD

The Australian Dollar has gotten the better of AUD/NZD trade overnight with a rally
up to a high of 1.0377. We’ve come off the high and markets are now trading
just below at 1.0368. In the absence of news AUD/NZD has been traded largely on
sentiment and the offering pressure is in for the NZD for the short term. No
data out today