Currency Update - Friday 21st February 2020

AUD

We open this morning to another damaging headline for the
Australian Dollar as fears were stoked yet again over the global impact of the
ongoing Coronavirus. Risk positions were trimmed and the Australian Dollar
found itself in yet another overnight sell-off. This was the second blow landed
against the AUD in the past day with the first being a jump in unemployment
from 5.1% up to 5.3%, confirming fears over the Australian labor market despite
a recent run of positive data. It’s been a difficult 24 hours for the AUD and
with little other Australian data to offer some assistance, there is no doubt
we’ll finish the week on the back foot.

USD

The USD hasn’t missed a beat as we finish this week and more
broadly this year as the Australian Dollar continues the descent down to fresh
11 year lows. Markets are trading the pair just above 0.66 and there are no
historical support levels to rely on. The Australian Dollar has a history of
overreaction and correction as markets overbuy and oversell the
commodity-driven currency in equal measure and importers will be relying on
such a correction if we want to stay above 0.66. It risks off for the time
being with US equities retreating as the S&P500 drops 0.6%. Ono the data
front, US weekly jobless claims were large as expected with initial claims
exactly match forecasts of 210k while continuing claims rose modestly to 1.726
Mio to fall marginally short of expectations of 1.717 Mio. Meanwhile, the
Philly Fed Survey for February printed at 36.7, up from 17.0 and much better
than expectations of 112.0. Fed’s Clarida’s commentary also helped support US
strength as he argued that the fundamentals of the US economy were strong with
a firm labor market amidst accommodative policy settings. He added that it was
too early to determine the effects of the coronavirus outbreak though trade
policy uncertainty had otherwise declined. US Flash Manufacturing PMI finishes
up the week early tomorrow morning.

EUR

We open lower against the Euro this morning as the AUD absorbs
the damage of the poor employment result. Markets are trading the pair at
0.6134 at the time of writing and with the Euro also under pressure in a
risk-off environment the AUD managed to find some footing in the overnight
session. There was little to note from the ECB Minutes with ECB officials
stating that policy must remain accommodative for a prolonged period and
affirmed the commitment to negative interest rates even as they saw some signs
of economic stabilisation. Data wise the main event is still ahead of us with a
glut of Euro PMI data out this evening to finish up the week.

GBP

Pound Sterling has made modest gains against the Aussie Dollar
since the employment data broke yesterday. The Pound managed to push the AUD
down to 0.5135 at the time of writing with a nice boost coming from a strong
retail sales result. UK Retail Sales for January rose 0.9% MoM and 0.8% YoY,
beating expectations of 0.7% and 0.6% respectively with core measures
significantly beating expectations. The UK joins the rest of Europe with their
PMI data in the mix this evening to finish up the week.

NZD

Even the Kiwis got the better of us in the past 24 hours of woe
as the AUD opens lower this morning. The Australian Dollar saw a high degree of
volatility as it jockeyed for position against the NZD before settling around
the 1.044 level. No other data to report.