Currency Update - Friday 24th January 2020

AUD

Fears over the coronavirus are escalating as the death toll
increases around Asia, causing traders to exercise caution on risk assets
like the AUD. The USD has been gaining ground as a reliable safe haven and the
Aussie had yesterday’s employmet data-led rally erased. Heavy selling in
equities in Asia have bled into Europe although US equities are holding on. The
big surprise yesterday was our Employment data that showed an increase of 28.9k
jobs, beating expectations of 12.2k jobs while our official unemployment rate
fell to 5.1%. However, a closer look at the figures revealed a much softer
labour market than the headlines would reveal with full time employment
dropping -0.3k with all the gains made in part time employment. Despite this,
the Australian Dollar climbed up to 0.6878 quickly before heavy sell offs came
in the overnight session to push us back down again. No Australian data in
front of us today but tonight we have a range of data out of Europe tonight.

USD

Despite rallying after strong domestic employment data, the
Australian Dollar was sold hard overnight and markets are trading AUD/USD at
0.6847 at time of writing. The risk-off mood is keeping the Australian Dollar
subdued and trading around the 0.6850 level where markets seem to be
comfortable for now. The White House continues to beat the tariff drum with US
Commerce Secretary Ross advising that EU auto tariffs are still an option. Ross
was also positive that a US/UK trade deal could be done this year. US weekly
jobless claims were also released with both initial claims and continuing
claims modestly beating expectations. Still to come is US January preliminary PMI 
which will be out tonight though expect this to be only of moderate impact.

EUR

With the Euro under selling pressure the Australian Dollar has
managed to hold onto gains yesterday's employment rally with markets trading
just below the 0.62 handle. Uncertainty over US tariffs hitting the Eurozone is
injecting some weakness into the Euro and the rising coronavirus death toll is
not helping. In somewhat of a non-event, the ECB left rates on hold as
widely expected with the accompanying statement advising that little has
changed with rates to remain at present or lower levels for the time being. The
condition of a rate change is now based on whether or not the inflation goal is
met with QE to remain until just before rates are raised. They also announced
their strategic review with details to be revealed later in the day. Lagarde
began by repeating the statement though noted that there were signs of a
moderate increase in underlying inflation with the comment giving Euro a small
boost. It soon gave up the gains when she said that ample accommodation is
still needed to get inflation to target and noted that there were no
conclusions to draw from the Swedish central banks decision to move away from
negative rates. On the data front, EU Consumer Confidence for January fell to
-8.1, weaker than expectations of -7.8. Ahead tonight we have a range of PMI
readings out of Europe all set to come out from 7-8:30pm.

GBP

Pound Sterling quickly eroded much of the gains made yesterday
following our employment win, though the Aussie Dollar is finding some support
around 0.5220. While there was little in the way of data out of the UK, the
risk-off environment is keeping the Australian Dollar very subdued so any
initial rallies are being quickly erased as markets correct pricing. Ahead this
evening we have PMI data out for the UK along with most of mainland Europe. A
strong result could certainly send the Aussie lower below 0.52 so keep your
downside risk in mind as we finish up the week.

NZD

The Australian Dollar has whiplash this morning after a
sharpdrop from yesterday's highs of 1.0430 down to 1.0343 at time of
writing. The employment win gave AUD a big rally and that held on until this
morning when NZD CPI beat expectations of 0.4% with a 0.5% print. AUD
under pressure as markets absorb the data. No other data ahead.