Currency Update - Wednesday 12th February 2020
AUD
Global risk sentiment continues to improve, helping
the Australian Dollar bounce out of 10-year lows. The ongoing Coronavirus
virus outbreak is still acting as a significant anchor, however traders are
slowly taking more comfort holding postitions in risk assets.
While confirmed cases in China are on the rise, the growth rate seems to
be cooling, hence why traders are less worried about the situation. Gauging the
extent of the economic fallout is still a difficult challenge so we shouldn’t
anticipate a full recovery too quickly however it could be a sign of things to
come. China’s Xi Jinping recently claimed that the state’s actions to get the
crisis under control are working and the lack of an international outbreak is
an encouraging sign. Consequently, equity markets were on the rise with both
European and US equities closing the day in the black. There was an absence of
Australian data yesterday and today is no different with nothing of
importance scheduled until tomorrow morning when Governor Lowe provides
the latest monetary commentary.
USD
The US Dollar Index remains relatively unchanged however the
change in risk sentiment has helped the Australian Dollar find a boost, trading
to a high of 0.6737 overnight before settling at 0.6713 at time of
writing. In other news, testifying before the House Financial Services
Committee, Fed Chair Powell indicated that monetary policy likely remained
appropriate in the absence of a material change to the economic outlook though
highlighted the fact that the Fed were closely monitoring the coronavirus outbreak
for its effects on China and the global economy. The remarks were largely in
line with what was expected so currency markets remained relatively unchanged
though it did encourage the Aussie Dollar to give back some of the gains made.
Looking ahead we have Day 2 of Fed Chair Powell’s monetary policy commentary in
the early hours of tomorrow morning, the sole source of US data.
EUR
We open higher against the Euro this morning for the second
consecutive day with markets trading the pair at 0.6149 at time of writing.
Euro equities opened positively following a strong lead from Asia and this
helped the broader EuroStoxx 600 index move to fresh record highs. This however
didn’t help the Euro much which remains weak following initial reports that the
chances of ECB easing had increased on the back of weaker data and the threat
of the coronavirus. This wasn’t entirely congruent with the ECB’s Lagarde which
provided a slightly less dovish characterisation of the situation, indicating
that the bar to further easing was high. We have a quiet day ahead with no
other news coming out of the Eurozone.
GBP
Markets have AUD/GBP at 0.5184 at time of writing with the
Aussie Dollar slightly off the overnight highs of 0.5204. The
improvement in risk sentiment helped the Aussie make gains throughout the day
against the Pound however positive revisions to UK GDP helped GBP find some
bidders. UK GDP came in flat as expected but following the revisions the annual
rate of growth came in at 1.1% vs the forecast of 0.8% which saw the Aussie
come off the highs. No other data to report.
NZD
The Australian Dollar continues to add to gains made in the month of February with the AUD testing
highs of 1.05 yesterday evening. The Aussie drifted lower during the overnight
session with markets trading the pair at 1.0483 at time of writing. Later today
the RBNZ announces its monetary policy decision, alongside the release of its
quarterly Monetary Policy Statement. The Bank is widely expected to keep the
Official Cash Rate unchanged at 1%, with markets pricing around a 5% chance of
a cut. Governor Orr will be weighing in on the decision tomorrow morning in
otherwise what will shape up to be a light day of data for the NZD.