Currency Update - Friday 13th March 2020
AUD
We open this morning to total carnage in financial markets as
another wave of heavy selling decimates risk assets sending the AUD into free
fall. The FOMC is acting decisively with an announcement of a new bond buying
operation which Macquarie strategist Thierry Wizman called “effectively a
restart of bona fide QE”. US equities were gutted with the Dow Jones moving
9.9% lower while the S&P dropped a full 10%. We’re now dealing with a
liquidity problem as well as a sentiment problem which is meaning the swings
are becoming more extreme as traders are simply exiting the market to wait for
things to settle down. The Covid-19 outbreak continues to put pressure on
schools and universities around the world with many in Europe opting to close
while in the US the NHL and NBA have both been suspended in addition to Trump’s
EU -> US travel ban. Looking ahead with the lack of liquidity calling a
possible bottom is a fool’s errand and we can only look towards governmental
intervention and positive coronavirus updates for sources of bids.
USD
The AUD has plummeted down to a low of around 0.6218 before
finding some bidders to put us back above 0.63. The Fed is pumping up to $1.5
trillion USD into a liquidity operation in an effort to calm market tumult amid
the coronavirus meltdown. This was the second day in a row and the third time
this week the Fed has stepped in and underlines just how seriously financial
markets are under threat. “These changes are being made to address highly
unusual disruptions in Treasury financing markets associated with the
coronavirus outbreak,” the New York Fed said in an early afternoon announcement
amid a washout on Wall Street that was heading toward the worst day since 1987.
US weekly jobless claims came in better than expected with initial claims at
211k and continuing claims at 1.722 mio. US PPI for February fell 0.6% MoM to
come in worse than expectations of a 0.1% decline. Little reaction to the data
amid the chaos.
EUR
EUR importers will be the pleased to see that the EUR was almost
as heavily sold as the AUD which means that while we took some losses overnight
they weren’t nearly as severe as against other currencies. Despite this,
markets are trading AUD/EUR at 0.5626 at time of writing, over 2% lower than
yesterday’s open. European equities were down 5% approx. in early trade with
oil down a further 4% also. Little in the way of European data with EU
Industrial Production up 2.3% in 2.3% MoM in January, easily beating
expectations of a 1.5% gain. Little reaction to the data. The ECB left rates on
hold in somewhat of a surprise decision though announced new liquidity measures
to provide further stimulus. Christine Lagarde key points at the press
conference were here reiteration of the need for further fiscal and that risks
remain clearly to the downside with the virus a presenting the most substantial
downside risk. She stated that the ECB will use all tools at their
disposal to help.
GBP
Similarly to the EUR the Pound found itself on the short lists
next to the AUD so our losses to GBP were minimised. The AUD was sent down
below 0.50 but since has clawed it’s way back up to hold onto 0.50 for the time
being. Very little news out of the UK so at the moment we’re trading purely on
sentiment and with UK’s proximity to continental Europe it’s wrapped up in the
sell off. No other data to report.
NZD
The AUD continues to slide against the Kiwi with markets trading
the pair at 1.0266 at time of writing. Both currencies are on the brink facing
heavy sell offs overnight with data having almost zero impact amid low
liquidity conditions.