Currency Update - Monday 6th January 2020

AUD

Markets are adjusting to a downturn in risk sentiment this
morning as geopolitical concerns over the Middle-East are flaring up following
the death of an Iranian Commander, killed by a US attack. This was followed by
threats by Iran of retaliation as tensions escalated. Oil reacted immediately
and closed the week +3% while equity markets were quickly sold off. The
Australian Dollar was wrapped up in the risk asset sell off and took hits
across the board. On the data front we have a relatively quiet start to the
week with the lone piece of data set for release today being the low-impact AID
Manufacturing Index. Expect a relatively quiet day for the Australian
Dollar, sentiment the main driver. Later this week the local data picks up,
with Trade Balance and Retail Sales on Thursday and Friday respectively. 

USD

The US attack that resulted in the death of the Iranian
Commander has spooked markets and predictably we’ve seen an uptick in the USD
as a reassuring safe haven for traders. The Australian Dollar kept the losses
to a minimum with a 20 pip drop following the news on Friday with markets at
time of writing trading at 0.6937. Markets were somewhat placated Friday after
Pompeo advised that the US remain committed to de-escalation with Iran. Trump
followed up with a tweet “Iran never won a war, but never lost a negotiation”.
On the data front the US ISM Manufacturing for December fell to 47.2 and levels
last seen in June 2009. Details were unsurprisingly weak with New Orders the
weakest since April 2009 and Employment at a 4-year low. The USD was weaker in
response though movement was fairly subdued. The FOMC Minutes offered little in
the way of new information with rates likely to remain appropriate for the time
being. Ahead today we have FOMC member Williams commenting in what is otherwise
a relatively quiet day of news.

EUR

With offers for risk assets across the board, the Euro was as
much under threat as the Australian Dollar so it comes as little surprise to
see AUD/EUR to remain largely unchanged since Friday with markets trading at
0.6215 at time of writing. German unemployment provided no surprises with the
official reading holding steady at 5% as expected. Slightly better news for our
European friends came in the form of German CPI which came out at 0.5% for
December with an annual rate of 1.5%. Both measures were 0.1% above
expectations and provided the Euro with a small boost to trade. Ahead today we
have a range of various low impact PMI releases from EU members though none are
expected to stimulate any significant movement in AUD/EUR rates.

GBP

As markets take risk off the table, Pound Sterling has edged out
the Australian Dollark, trading just above 0.53. The drop in AUD/GBP was
limited to around 15 pips and we should expect a fairly subdued day of trading
ahead with little other high impact news. Ben Broadbent was announced as the
latest MPC member early this morning however markets remained unchanged from
the news.

NZD

The news from the Middle-East was bad news for Antipodean
bulls though Kiwi hasve gotten the better of AUD since Friday. Markets traded
AUD/NZD in a fairly wide range however the Australian Dollar is holding on to
1.0424 levels at time of writing. A quiet day ahead so expect sentiment to
largely drive movements.