Currency Update - Wednesday 4th March 2020

AUD

The AUD has managed to lift again overnight, most notably
against the USD, following a surprise Fed rate cut by half a percent. The
initial reaction in US equity markets was a sharp move higher before a complete
reversal in the S&P500 trading 1.5% into the red while the NASDAQ was off
2.4% in late trade. The mood here in Australia was a little better with the
ASX200 finding enough interest to finish the day 0.7% higher. There is still
significant volatility within global markets so this initial optimistic reaction
may only be a honeymoon rally and with the Coronavirus outbreak still well
underway there is significant uncertainty moving forward. Ahead today we have
GDP which will be hugely significant if the AUD can put out a good figure to
help find more bids.

USD

In a surprise move, the US Fed slashed interest rates by 0.5% overnight to help
the economy absorb the damage wrought by the coronavirus. The AUD quickly found
itself hurtling to a high of 0.6646 before the market began the sell-off to
push us back down to just below 0.66 at the time of writing. There was minimal
support to be found at 0.66 so it’s important to note there remains significant
underlying weakness to the AUD so while we have lifted, for now, we may not
stick around. There is a growing death toll in the US from the coronavirus and
in Europe, the situation is escalating. The only piece of good news is that the
situation in China does seem to be slowly improving with fewer and fewer
confirmed new cases. G7 also released a joint statement on the impact of
COVID-19 as they sought to “reaffirm our commitment to using all appropriate
policy tools to achieve strong, sustainable growth and safeguard against
downside risks”.

EUR

We open higher again against the Euro this morning as markets
attempt to wrestle with increased volatility coming from surprise monetary
moves and the ongoing coronavirus outbreak. The AUD was on the way to a high of
0.5940 before coming back down to trade below 0.59 at the time of writing. Euro
remains under pressure as the death toll rises in Italy and the rest of the
continent races to prepare for their outbreaks. There was a miss on CPI Flash
Estimates out of the Eurozone by 0.2% below expectation but with so much going
on monetarily it was largely ignored by markets.

GBP

Pound Sterling has once found itself under pressure as the AUD
rallied overnight to a high of 0.5180. The move to cut rates by the US Fed has
assisted risk currencies, at least temporarily. Since touching the high against
the Pound markets have since been sold off back down to 0.5140 at the time of
writing. A statement from the BoE yesterday provided a fairly uninteresting
reaffirmation that they “will take all necessary steps to support the UK
economy and financial system, consistent with our statutory responsibilities”.
The carefully worded statement doesn’t provide too much of an update but does
advise that they are carefully monitoring the situation for conditions that
would necessitate monetary action.

NZD

The AUD has broken out higher against the NZD with markets
trading the pair just below 1.05 at the time of writing. The AUD has been
heavily bid against most majors and while the NZD has benefited from the recent
reversal in sentiment it often does find itself playing second fiddle to the
Australian Dollar.