Currency Update - Friday 7th February 2020

AUD

Markets are fickle at the best of times but it appears that the
Australian Dollar has lost some of its appeal to traders despite other risk
assets performing well. For example US equities continued to rally overnight
and posted their 4th straight gain resulting in a 3.7% move higher
over the week to date. A mixed result for local Retail Sales yesterday may
be the cause, however the immediate impact at the time was a perplexing and
short-lived lift in the Aussie Dollar. Monthly sales fell 0.5% in Dec, coming
in below expectations of a 0.2% decline – the pattern suggesting the
pull-forward 'Black Friday' sales had a more pronounced effect (the decline
followed a strong 1% rise in Nov). However overall real retail sales increased
0.5% for the quarter as a whole, an increase that was above expectations of a
0.2% gain. Trade balance also missed with a $364m decrease on the surplus in
November 2019. Ahead today we have RBA Governor Lowe providing some commentary
just before we have the RBA’s official monetary policy statement. We also have
Chinese trade balance tentatively penned in for today. Short of some
particularly hawkish comments from Lowe we will likely finish up the week with
the Aussie still fairly weak with minimal bidding interest.

USD

The Australian Dollar has drifted off its recent highs and has
settled into the 0.6730 region following a spirited rally that took us close to
0.68 earlier in the week. Sentiment was boosted by news that China would be
reducing some of the tariffs on US goods that were brought in during the trade
war. However, sentiment soon soured as carmaker Kia announced that output
will be halted on February 10 due to a shortage of parts from China as a
consequence of the coronavirus. Into the NY morning and weekly jobless claims
data was mixed with initial claims falling to 202k to beat estimates of 215k
while continuing claims rose to 1.751 mio to fall short of expectations of
1.720 mio. Q4 Non-farm Productivity was 1.4% against expectations of 1.6% while
Unit Labour Costs were 1.4% compared to expectations of 1.3%. Little reaction
to the mixed data though the greenback was generally firmer over a quiet NY
morning. Looking ahead we have US Employment and Nonfarm Payrolls out tomorrow
morning so get your market orders in if you’d like to take advantage of any
moves higher over the weekend.

EUR

AUD/EUR logs another uninteresting day of sideways trading with
markets trading the pair at around the 0.6127 level. In early European data
German factory orders fell by 2.1% in December compared with an estimate of
+0.6%. It failed to hurt European equities which opened strongly and had little
impact on AUD/EUR rates. A quiet finish for the week without any news out of
the Eurozone scheduled for released.

GBP

We open higher this morning for yet another consecutive
day, with markets trading AUD/GBP around the 0.52 handle. The Australian
Dollar spent most of yesterday drifting higher against the Pound though stayed
in a relatively tight range. There was little on the data front, so AUD/GBP
traded on sentiment and fears of a hard Brexit (no trade deal agreed to before
the end of the year) are still creating some underlying weakness in the Pound.
No other news to finish up the week.

NZD

We open at familiar levels this morning with markets
trading AUD/NZD around 1.0422 at time of writing. We spent yesterday moving
slightly higher against the Kiwi however once the overnight US session kicked
in the Australian Dollar immediately came under pressure and the Kiwi got the
better of the trading session. This afternoon we get Kiwi Inflation
Expectations q/q so perhaps some movement before we finish up the week.