Currency Update - Thursday 30th January 2020

AUD

There was a much more subdued trading session yesterday with the Australian Dollar
trading in a tight range across the board. While the initial coronavirus
induced risk sell off appears to have ended, there is still little appetite for
the Australian Dollar. Australian equities found themselves stalled and in the
overnight session there was little movement across the majors. Australian CPI
data came in with a strong reading with a reading of 0.7%, ahead of
expectations of 0.6%. This further reduced the likelihood of an RBA rate cut
which added some bids for the Aussie but the reaction was overall fairly muted.
Ahead today there is a Chinese bank holiday so no Chinese data though just
after midnight we have USD Advance GDP figures.

USD

The Australian Dollar has flattened out in the past 24 hours
with a day of sideways trading as markets attempt to price in the nebulous risk
factors posed by the coronavirus. AUD/USD traded in a tight 40 pip range across
the past 24 hours with markets trading the pair close to where we started
yesterday morning at 0.6752. Despite some good CPI data adding some wind to the
Aussie’s sails yesterday, Chinese officials said that the number of coronavirus
cases were rising in Beijing and risks of infection were increasing with Hong Kong
announcing further expected cases. Meanwhile Chinese economists predicted that
economic growth may dip below 5% in Q1 as a result of the outbreak and the
economic impact would be significantly greater than with the SARS outbreak. In
other news the FOMC left US rates on hold as widely expected with little market
reaction. On the data front US Wholesale Inventories for December fell by 0.1%,
falling short of expectations of a 0.1% gain. The December trade deficit
meanwhile widened to $68.3 bio, out from $63.0 bio and worse than expectations
of a $65.0 bio. The second round of US data saw December Pending Home Sales
fall by 4.9% MoM and rise by 6.8% YoY, both significantly weaker than
respective expectations of +0.5% and +10.3%. Between this and the latest news
out of China this quickly added selling pressure to the Aussie which sent us
lower to a new low 0.6735 before markets recovered.
EUR

A very quiet 24 hours out of the Eurozone with the Aussie
trading in a tight 30 pip range and with markets trading AUD/EUR at 0.6753 at
time of writing. There was Little in the way of meaningful European data with
little reaction seen to better than expected consumer confidence numbers in
France, Germany and Italy. European equities pared some gains in late trade though
still closed in positive territory with the CAC, MIB and IBEX all up around
0.5% while gains on the FTSE and DAX were more limited. Ahead today we have
some German CPI data in what is looking like another quiet day for the Euro.

GBP

The Australian Dollar opens this morning almost exactly where it started
yesterday with markets trading AUD/GBP at 0.5188 at time of writing. The Aussie
found some life yesterday morning and moved up to a high just over the 0.52
handle. However, by the afternoon the bears seized momentum and sending us down
to a low of 0.5180 where some support was found. Ahead this evening we have the
Bank of England’s monetary decision which is facing mounting pressure to cut as
the UK drifts further away from their inflation targets of 2% (1.3% currently).
Current odds have the BoE at a 45% chance of cut so little more than a coin
flip. Expect movement in AUD/GBP following the decision regardless of where the
coin lands.

NZD

The antipodeans have had a subdued 24 hours between them with markets trading AUD/NZD at 1.0341 at
time of writing. With the FOMC decision pumping the brakes on trading volumes
and a general lack of significant news the pair have traded in a tight range. Good
Aussie CPI data added some life but nothing significant. Little else scheduled
for the next 24 hours.