Currency Update - Tuesday 14th January 2020
AUD
The risk continued to rise overnight helped by reports that the US
plans to lift the “currency manipulator” tag from China. Equities came off the
best with muted reactions from risk currencies like the Australian Dollar
failing to benefit much from the marginally improved market conditions. Markets
so far have been fairly subdued and trading in fairly tight ranges in the absence
of significant data releases so far this week. Ahead today we have the Chinese
balance of trade tentatively scheduled in the afternoon. This otherwise
moderate impact piece of data has been given more of the spotlight since
Trump’s rhetoric has so heavily focused on the disparity between US-China
trade. Despite this, we should see today be relatively quiet with the overnight
session providing more movement on the release of important US inflation data.
USD
The Aussie Dollar was trading up initially, finding some demand up
to 0.6919, but ultimately failed to break through 0.6920. The USD was soon
gaining ground with Treasury yields 1-2 bp higher and the Australian quickly
reversed to where markets are trading AUD/USD just above 0.69 at the time of writing.
The headlines that the US would lift its designation of China as a currency
manipulator are positive signs ahead of the upcoming signing of the trade deal.
So far, the response has been muted but importers don’t discount its importance
as a good sign of progress towards a less volatile market that should provide
good conditions for the Australian Dollar. Overnight we have December’s US CPI
which will be key for shaping market expectations for Federal Reserve monetary
policy. In November core inflation picked up somewhat on a monthly basis, after
softer readings in the months prior. Given favorable base effects from softness
on December 18th it is likely that we should see some improvement YoY.
EUR
Neither the Euro nor European equities made much noise in what was
an uninspired trade session with markets trading AUD/EUR around 0.62 at the
time of writing. This week the US and China are due to sign phase one of the
trade deal and dealers are looking forward to the event. With risk returning to
markets, equities have made substantial ground in recent months but with an
imminent trade deal, it appears as if traders are happy to sit on their hands
until the agreement is signed and sealed. Looking forward the second phase of
the deal seems more complicated with some pundits concerned over its likelihood
and has identified it as a source of tensions between US-China once the
honeymoon effect of phase one’s conclusion wears off. Little to report from the
Eurozone with little data to encourage action from the markets and nothing for
the rest of the day.
GBP
Pound Sterling has been hit by broadly disappointing economic
reports which have helped the Australian Dollar consolidate above 0.53. it was
estimated the UK economy contracted by 0.3% on a monthly basis in November. The
consensus estimate was for zero growth so this resulted in heavy selling of
Pound Sterling. It appears that a mixture of Brexit, as well as general
election uncertainty, resulted in poor result for the UK economy. Looking ahead
we have a quiet day for GBP but tomorrow we have significant releases in the
form of UK inflation data as well as PPI input.
NZD
The Australian Dollar has pushed higher to test highs of 1.042
before settling down towards 1.0411 at the time of writing. The Aussie dollar
came off the boil after NZIER’s QSBO showed a pick up in business confidence in
the final quarter of 2019, with a smaller proportion of businesses expecting a
worsening in general economic conditions. Meanwhile, NZIER’s trading activity,
which provides a better indication of demand in the New Zealand economy,
remained soft. No other data to report ahead today.