Currency Update - Thursday 6th February 2020

AUD

Investor sentiment continued to improve in overnight trade with
the market growing in confidence that the coronavirus won’t significantly
impact global economic conditions. The change in mood has allowed the  Australian
Dollar to trade firmly, improving against the majors. As widely expected
the RBA elected to keep rates on hold yesterday and Governor Lowe offered a
statement reiterating that there remains a high bar for another rate cut. The
Aussie Dollar had a small lift off the back of this and reinforcing bidding
pressure. In other central bank news, the Bank of Thailand unanimously voted to
cut interest rates to a fresh record low of 1% - the lowest in Asia outside of
Japan. Risk did face some difficult news from the WHO with one of their
spokespeople advising that thus far there is no known treatment for the deadly
coronavirus. Ahead this morning we have Australian Retail Sales and our Trade
Balance. Retail Sales are coming off of a strong January which was the
best result since May 2019, so if we can string together another strong result
we should see continued Aussie strength.

USD

The overnight shift in risk appetite helped the Australian
Dollar lift over 1.4% to a high of 0.6771 in the overnight session. A
spokesperson from the World Health Organisation commenting that at this point
there was no known treatment for the coronavirus did suck some of the risk
appetite out of the market however the mood remains strong. The Aussie Dollar
also had to contend with a strong US ADP Employment reading that showed that
291k jobs were created in January. This was the best result since May 2015, up
from 199k and easily beating expectations of 157k. The report noted that mild
winter weather had provided a significant boost to employment with roughly half
the gain coming from construction and leisure/hospitality. In other US data
news US Market Services PMI for January was upgraded to 53.4 against
expectations of no change at 53.2 with the Composite PMI also upgraded to 53.3
from an initial reading of 53.1. Released shortly afterwards, January ISM
Non-Manufacturing printed at 55.5, up from 54.9 and better than expectations of
55.0. The USD firmed up with the strong data results however the Aussie
Dollar was only slightly off the highs, trading at 0.6747 this morning.

EUR

The Australian Dollar continues to rally, moving higher
against the Euro with markets trading the pair at 0.6133. The morning saw the
release of the January service PMI numbers; Spain kicked things off with a
reading of 52.3 which was below the consensus of 54.0. Better news from Italy
(51.4 vs 50.5 exp) with France printing at 51.0 which was below the flash of
51.7. Germany matched the flash reading of 54.2 with the EZ composite reading
of 52.5 beating the initial reading of 52.2. Markets had a subdued reaction to
the data and the Australian Dollar continued unrestrained in its slow creeping
move higher against the Euro. ECB commentary from Lagarde who said that the EU
faced short-term uncertainties caused by global risks around trade,
geo-politics and the coronavirus. She also stressed that climate change would
be a key part of the ongoing strategy review. ECB’s Lane meanwhile said that EU
inflation was still too low and would pick up over the next few years and that
the new normal in regards to interest rates would be “positive but low”.

GBP

Pound Sterling remains on the backfoot against AUD, with only
the WHO spokesperson event to take the edge of the Aussie’s rise (see USD
section above). The Australian Dollar managed to trade above the 0.52 handle
however temporarily before consolidating at 0.5188 at time of writing. On the
data front the UK had a light day with only UK Services coming in at
expectation. No data ahead today.

NZD

The Kiwi Dollar had another difficult day against the Aussie as
we continue to move higher, reaching 3 week highs of 1.0440 in overnight
trading. The Aussie came off in the early morning as the WHO shared bleak
news over the virus’ existing treatment options but for now markets are holding
on just above 1.04. No data today to report.