Currency Update - Monday 24th February 2020

AUD

The demand for haven assets continued on Friday with fears around the spread of the coronavirus gripping markets once again. Gold was trading 1.6% higher while global equity markets were lower including the NASDAQ which fell almost 2%. We open this morning with one of the weakest opens against the majors in years and we’re starting the weak with a calendar light on Australian data. Risk sentiment will dictate the direction of the Aussie Dollar and with South Korea and Italy imposing tough new lockdown laws to stymie the spread of the virus we shouldn’t expect any reversals in the short term.

USD

We open beneath the 0.62 handles this morning for the first time in over a decade as risk sentiment plummets amid virus fears. There was a small reprieve over the weekend when the US Dollar Index fell 0.5% and the Australian Dollar managed to recapture the 0.66 handle however it wasn’t to last and the pair is trading at 0.6593 at time of writing. A surprisingly weaker USD came following the release of Markit Manufacturing PMI for February which fell to 50.8, down from 51.9 and below expectations of 51.5. We also saw Services PMI slump to 49.4, the lowest level since 2013, down from 53.4 and against expectations of no change. This saw the Composite PMI fall to 49.6 from 53.3. Released shortly afterward, January Existing Home Sales fell by 1.3% to 5.46 Mio, a little better than expectations of a 1.8% decline to 5.44 Mio. Following the release, the USD was trading lower and 30-year yields fell to a record low near 1.90%. No other data to report.

EUR

The Australian Dollar also suffered losses to the Euro as the AUD trades just below the 0.62 handles this morning. Eurozone PMI data for February was better than expected suggesting that the economy performed reasonably well despite supply chain and travel disruption caused by the coronavirus outbreak. However, the Euro quickly found itself under pressure again as sentiment shifted back to risk-off as concerns remained over how the coronavirus could derail the Eurozone’s recovery. Commentary on the Eurozone came from Lane who said that the EU economy was growing with domestic demand significant, wages growth and inflation gradually improve. They added that it was important to revive inflation to ensure ECB credibility and that it was “super clear” that the central bank stood ready to ease if needed. Ultimately there was enough positive commentary surrounding Europe to help the Euro win the bidding war and keep the Australian Dollar back down on the back foot. Looking ahead we have the German Ifo Business Climate survey out this evening which should be a high impact release given Germany’s esteemed position within the Eurozone. No other data to report. 

GBP

Pound Sterling has continued to chip away at the Aussie and we open this morning beneath the 0.51 handle. Fears over a hard Brexit have largely evaporated and traders are now focusing on the strength of the UK economy. The UK’s February PMI manufacturing data showed improvement with output reaching its highest level in 10 months coming in at 51.9 compared January PMI of 50. Despite the stronger than expected performance, the official report also highlighted warnings of the evidence of the coronavirus disrupting supply chains, with the February data pointing to the sharpest month-on-month drop in the supplier’s delivery times index in nearly three decades of data collection. Despite this false positive PMI reading being GBP negative, the Sterling found itself favored on the buying side and rose accordingly. Tomorrow morning we will see MPC Member Haldane speaking in what is the only source of news over the next 24 hours.

NZD

The Kiwi Dollar has crept higher against the AUD with markets trading the pair at around 1.0437 at the time of writing. Both currencies continue to suffer under the risk-off conditions however the NZD is on the backfoot this morning following a poor Retail Sales result. NZ Retail Sales fell to 0.7% below expectations of 0.8% and the sellers quickly piled on. No other data to report.\