Currency Update - Thursday 16th January 2020
AUD
Phase One of the much anticipated trade deal between China and
the U.S was signed earlier this morning where most details were as expected.
The reaction from currency markets was fairly subdued though the Australian
Dollar did slightly firm against the majors. Risk appears to be slightly out of
favour, with traders exercising caution and gold holding on to recent gains. It
was a quiet day yesterday for the Australian Dollar and in the absence of
significant news today we can expect more of the same. ASX200 is likely to
follow a strong lead from Wall Street overnight and will probably break the
7000 level at some stage today.
USD
With phase one of the trade deal signed and sealed, the
Australian Dollar has benefitted from a marginally improved risk environment,
moving up to highs of 0.6917 before coming back down to just above the 0.69
handle. At the signing of the US-China trade deal President Trump said that
there was a full and total enforceability of the deal and there were strong
standards on currency. He also outlined that agricultural purchases would be
$50b rather than the $40b rumoured to be part of the deal and that all tariffs
would be removed on the signing of phase two of the deal. The second phase is
what pundits have called the most difficult to get signed, so talks have
already begun but at this point we can expect a long and lengthy negotiation.
The trade deal prompted something of a dip in the USD and the Australian Dollar
saw some minor improvements from yesterday’s session. Ahead today we have a
quiet day but just after midnight we have US Retail Sales data as well as some
manufacturing data. Great opportunity for market orders to take advantage of
the overnight session’s movements.
EUR
AUD/EUR continues to be fairly uninteresting with the pair
seesawing around the 0.62 handle and today is no different. The trade deal
marginally favoured the Australian Dollar on account of our closer trading
relations with China and we saw some marginal gains off the back of this.
European equities opened with mixed results after the majority of Asian bourses
lost ground. On the data front German GDP was confirmed at 0.6% for 2019 which
is the weakest growth in 6 years. The data was released soon after the ECB’s
Holzmann said that the strategic review will start next week. So far AUD/EUR
has remains tightly bound in a narrow trading range and with limited high
impact data out today we can expect that to continue.
GBP
The Australian Dollar has come off this week’s high around
0.5320 and now is attempting to consolidate around the 0.53 handle. The bulls
were hoping the trade deal would be something of a shot in the arm for the
Australian Dollar but the benefit was minimal and Pound Sterling was quickly
eroding the gains to force AUD back under 0.53. On the data front, UK CPI came
in at 0.0% for December (0.2% expected) and 1.3% annually (1.5% expected).
Inflation now sits at the lowest level since late 2016 and this did encourage
offers for GBP as the odds that the Bank of England will cut rates increase.
Ahead today we have something of a quiet day with some BoE data out this
evening before Retail Sales hit tomorrow to finish up the week.
NZD
The Australian Dollar made fresh 2-week highs early this morning
before the Kiwi fought back to erode much of yesterday’s gains. Markets are
currently trading at 1.0432 at time of writing. Ahead today we have little in
the way of Australian or Kiwi data but with a glut of Chinese and American data
out tomorrow perhaps we’ll get some volatility to finish up the week.