Currency Update - Thursday 20th February 2020

AUD

Sentiment has lifted this morning as traders are hopeful the
Chinese authorities will give assistance to the economy in a bid to alleviate
the disruption caused by the health crisis. There is also speculation the
Chinese central bank will choose to lower the lending rate as a means of
helping the economy, as well as boosting confidence in its domestic stock
market. The infection rate of the coronavirus has fallen for the second day in
a row, which has eased some of the fears markets have over the virus. Despite
this, the Australian Dollar remains weak and saw further offering pressure
overnight. There were no surprises yesterday with the Australian Wage Price
Index coming in dead on expectation at 0.5. Today we have the January
Employment figures coming out which will be critical if the AUD wants to stage
a recovery. There is some concern that the recent bushfire disaster may impact
new hires however with the metropolitan areas largely unaffected we may very
well see another strong jobs result.

USD

The Australian Dollar is hanging on by a thread after an
overnight session that saw the beleaguered currency heavily sold off. The US
Dollar is indominable thus far in 2020 with interest coming from yield chasing
investors as well your traditional buyers looking for low volatility risk off
safe havens. With the USD Index at its highest level since April 2017, the
Australian Dollar faces an uphill battle in currency market conditions. Markets
are trading the pair at 0.6678 at time of writing, just above fresh 10-year lows.
With so much of our trade wrapped up with China, the Australian Dollar is being
traded as a Chinese proxy and unsurprisingly the existential fears facing the
Chinese economy have bled into trader’s valuation of the Australian Dollar
accordingly. The extent that the Chinese economy will be harmed by the
coronavirus as well as concerns that a slowing Chinese economy will reduce the
need for Australian commodities are turning traders off the AUD.

EUR

We open lower this morning against the Euro after a difficult
overnight session that saw the Aussie fall back down from the 0.62 handle to
0.6177 at time of writing. Both Euro and the Aussie suffered overnight against
the USD but the Euro appears to have gotten the better of the AUD with the
small drift lower. There was little data to help push markets in one direction
so markets traded the sentiment and overnight the Aussie was a popular target
for short sellers. Today should be a quieter day as tomorrow we have a big data
dump of PMI data from across the Eurozone.

GBP

Pound Sterling was one of the few currencies the AUD managed to
move higher against overnight with markets trading the pair around 0.5166 at
time of writing. There was some upbeat data out of the UK with a strong CPI
reading of 1.8% against the 1.6% expected however there was little reaction
from currency markets. The Pound quickly found itself losing ground against the
majors in a perplexing move in currency markets. The UK also had a strong PPI
Input reading but again, little reaction from markets. Ahead today we have
Retail Sales out this evening and if the UK posts another data win it is likely
we’ll see markets take notice.

NZD

Trade has flattened between the AUD/NZD pair as both currencies
take an equally severe battering in the currency markets. While sentiment has
lifted to see equity markets lift, there is little love for the Antipodeans and
their close trade links to China. No other data to report.