Currency Update - Wednesday 5th February 2020
AUD
It was US equity markets that led the way for a sharp bounce in
risk sentiment overnight but the Australian Dollar opens higher this morning.
With plenty of bids from bargain hungry traders eager to pick up a beleaguered,
oversold currency we start the day with a breath of life in the Aussie Dollar.
Confidence is growing that the coronavirus may not have the large economic
impact as first feared and investors are piling into risk assets. This
shouldn’t discount further downside risk too heavily as we have dealt with this
earlier in the month when the coronavirus appeared to be contained and then
fears were quickly renewed and the Australian Dollar plummeted. Yesterday we
had the RBA rate cut decision where the RBA predictably put rates on hold for
another month. It had been priced in at a 26% chance of a rate cut so there was
a muted reaction from a market that had largely priced in the hold. Looking
ahead for today we have Governor Lowe speaking at lunch time and then shortly
after we have Chinese PMI data. If the data comes out strong and risk stays on
the menu the Australian Dollar should have a clearer path back up since the
recent implosion.
USD
The Australian Dollar is on the move with a full head of steam,
coming up from yesterday’s lows of 0.6880 to move up nearly a full percent to
back up to 0.6740. The markets have been waiting for a black swan event where
the coronavirus spreads internationally to an extent that it brings a
significant economic impact and so far, that appears to be growing less likely
with each passing day. As this likelihood lessens it comes with a growing
confidence that investors can put their money back into risk. Overnight the
S&P500 and Dow Jones both gained 1.6% while the NASDAQ jumped 2% as
treasury yields were heavily sold with implied 10-year yields gaining 8bps. We
also saw US Durable Goods Orders for December which were confirmed at +2.4% as
expected, unchanged from the initial reading. Factory orders meanwhile rose
1.8% to easily beat expectations of a 1.2% gain with the ex-transport measure
up 0.6% compared to forecasts of just a 0.1% increase. However, with investors
firmly in a risk on mode, there was a muted reaction to the positive data.
Looking ahead we have ADP Non-Farm Employment Change and ISM Non-Manufacturing
PMI as well as Crude Oil Inventories all coming out overnight.
EUR
The Australian Dollar has added to its gains yesterday which
this morning now totals a full percent against the Euro since yesterday
morning. Markets are currently trading the pair just above the 0.61 handle as
the Australian Dollar finds some bids. Euro had a light calendar yesterday but
this evening we have new ECB President Lagarde speaking who should offer some
monetary insight.
GBP
Pound Sterling continues to retreat as the Aussie pushes higher
with markets trading AUD/GBP at 0.5170 at time of writing. The Australian
Dollar spent most of the day slowly creeping higher against the Pound but a
surprise win on UK construction PMI (48.4, beating expectation of 47.1) saw the
Pound quickly rebound. However, the gains were quickly reclaimed by the Aussie
Dollar which has quickly become a popular currency for buyers. We have Final
Service PMI out of the UK this evening in what is a fairly light calendar.
NZD
The Australian Dollar suffered some losses overnight but is still higher than
yesterday’s open with markets trading AUD/NZD at 1.0375 at time of writing. NZD
Employment came in with a big win this morning with the official Unemployment
Rate changing from 4% down from 4.2%. With markets looking for risk such an
impressive reading should leave the NZD in good stead to continue accumulating
bids.