Currency Update - Thursday 5th March 2020

AUD

Sentiment enjoyed a lift overnight as markets rode the wave of
Joe Biden’s Super Tuesday victory where he took over as front runner for the
2020 Democratic candidate. Between the markets more liberal view of Joe Biden
and the 50 point interest rate cut yesterday, investor confidence is high
despite the ongoing and accelerating coronavirus outbreak. The Australian
Dollar was among the beneficiaries of the renewed market confidence which
enjoyed a strong day and night of trading. Yesterday Australian GDP also came
in strong with a 0.5% reading, beating the forecasts of 0.4% and providing a
much needed boost to the underlying strength of the AUD. A shocking print came
out for the Chinese Caixin Services PMI however between the big-ticket news
items out yesterday no one seemed to notice the reading coming in at 26.5,
nearly half of what was expected. Also failing to make much of a headline was
RBA deputy Governor Debelle who said that Australian service exports will fall
by 10% in Q1 which will take 0.5% off of GDP. He added that their market
interactions had noted supply chain disruption in the retail and construction
sectors.  This acts as a useful reminder that macroeconomic conditions
right now are still poor and the economic fallout won’t fully be processed for
months and this should be a lingering source of AUD weakness in the more medium
term.

USD

The Australian Dollar continues to lift amid the coronavirus
outbreak and with a sense of optimism returning to markets, the AUD managed to
achieve a high of 0.6646 before consolidating slightly lower above the
0.66 handle. US yields ended marginally lower with the 10 yr still trading
under 1% while oil remained relatively flat. There was a small lift in the US
Dollar Index however this was primarily picked up from weakness in JPY and EUR.
ADP employment increased by 183k in February, beating the forecast of 170k. The
January number was revised lower to 209k from 291k initially. US equities
meanwhile opened with 2% type gains before drifting off the highs. The beige book
was released in the U.S late in the session Beige Book with growth assessment
upgraded to "modest to moderate" vs. "modestly" (reflects
data gathered up go 24-Feb), it also noted that "There were indications
that the coronavirus was negatively impacting travel and tourism ".
Investor mood failed to be impacted by the more bleak report out of the beige
book however with the S&P maintaining its gains of 2.8% for the day.

EUR

The AUD continues the march back towards 0.60 with
markets trading the pair at 0.5950 at time of writing. EUR remains under
selling pressure despite the upturn in investor confidence as the growing death
toll and infection rate in Italy continues to wreak havoc. The European morning
saw the release of the service PMI numbers for February. Spain kicked things
off at 52.1 with Italy at 52.1. France came in at 52.5 as did Germany with the
EZ measure printing at 52.6. The UK service PMI came in at 53.2. There was
little reaction to the data although the Euro was drifting a little lower. Chinese
authorities did advise that there is no data that shows the incubation period
of coronavirus is longer than 14 days and that there is no proof that recovered
patients who test positive are infectious. No other data to report.

GBP

We open marginally higher against the Pound this morning
following an up and down day and night of trading with markets trading the pair
at 0.5148 at time of writing. Sterling weakness allowed the AUD to lift as
markets largely expected the Bank of England to cut rates yesterday. When this
failed to happen markets reacted immediately with Sterling coming off the lows
and pushing the AUD back down again. Incoming BOE Governor Bailey said that the
bank must be nimble in responding to coronavirus and that a number of tools
outside of monetary policy have been developed including assisting supply
finance. No other data to report.

NZD

The AUD continues to push higher against the Kiwi after breaking the 1.05 handle yesterday with
markets trading the pair at 1.0517 at time of writing. The AUD has managed to
shake off the poor Chinese manufacturing data recently and enjoy the lift in
sentiment. No other data to report.