Currency Update - Friday 31st January 2020

AUD

Despite earlier signs that thus far the coronavirus was being
well contained we now have the first confirmed person to person infection in
the US. Risk immediately came off as traders exercised caution and the
Australian Dollar was embroiled yet again in the sell off. The World Health
Organisation has declared a global emergency and many countries around the
world are ramping up their own classifications to reflect the seriousness of
the outbreak. While this is underway, we can expect the Aussie to be under
heavy pressure, particularly so against the USD. Ahead today we have Chinese
manufacturing PMI though in the heavily risk off environment we find ourselves
in, it is unclear what impact even a particularly strong reading could have on
current AUD levels.

USD

The Australian Dollar is knocking on the door of 10+ year lows
against the USD with markets trading the pair at 0.6722 at time of writing.
With the coronavirus weighing heavily on risk sentiment, the Australian Dollar
has been heavily sold and despite the USD Index being in the red (after five
straight days of gains) the greenback still forced AUD to lows of 0.6700. US
equities were also hit with the S&P 500 falling .4% (before a late
recovery) while U.S yields were also lower with the 10 year space falling 4bps.
On the data front, US Q4 GDP was steady at 2.1% to come in better than
expectations of a drop to 2.0%. Other data was not as positive with Personal
Consumption falling to 1.8% from 3.2% and coming in weaker than forecasts of
2.0% while Core PCE fell to 1.3% from 2.1% to fall short of expectations of
1.6%. Weekly jobless claims data was mixed with initial claims basically as
expected while continuing claims fell marginally though there were negative
revisions to both numbers. Ahead tomorrow we have some moderate impact data in
the form of Core PCE, Employment Cost Index, Personal Spending and Chicago PMI.

EUR

The Euro has slowly and consistently beaten the Australian
Dollar down to lows of 0.6072 over the past 24 hours, however it recovered
some of the losses this morning back up to 0.6093 at time of writing. The
Eurozone has benefitted from some surprisingly strong employment data to give
the Euro a fresh head of steam and led to Euro outperforming other majors
overnight. Early data from Germany with unemployment declining by 2k in January
to beat expectations of an increase of 5k. Released a little later, the EU
unemployment rate unexpectedly fell to 7.4% against expectations of no change
at 7.5% while Consumer Confidence was confirmed at -8.1. Ahead today we have
Spanish Flash GDP this evening and CPI Flash Estimate to finish up the week.

GBP

Pound Sterling has made significant ground, AUD dropping 1%
to trade at 0.5134 at time of writing. With the Australian Dollar suffering the
brunt of the selling pressure in the past 24 hours, Australian importers
troubles doubled when the Bank of England elected to keep rates on hold.
Markets had the odds of a rate cut at around 45% so with little more than
coinflip in it, markets struggled to price in the decision in either direction.
The vote ultimately landed 7-2 in favour of a hold and upgraded their
assessment of global and domestic economic conditions. However, they also
suggested policy easing may be required if the outlook worsens with Governor
Carney indicating that they were data dependent going forward. A quieter day
ahead with little in the way of significant UK data to finish up the week.

NZD

In what is perhaps the lone piece of good news for Australian
importers, the Aussie Dollar managed a slight gain on the NZD with markets
trading the pair at 1.0352 at time of writing. The Kiwi has also found itself
under the seller’s hammer and so far this has translated to AUD/NZD trading
fairly flat but we’ve moved up slightly in the past 24 hours of trading. No
more data scheduled for release to finish us up.