Currency Update - Tuesday 21st April 2020

AUD

Risk has taken a big
hit overnight with oil suffering an incredible collapse where oil futures fell
to -$40 per barrel, shaking investor confidence and sending the AUD broadly
lower across the majors. Oil futures falling to -$40 per barrel may seem impossible
at first but unlike many other futures that “settle to cash”, oil and other
commodities futures “settle for the actual product”. This means that if you
have a futures contract to buy oil that means that on a certain date then if
you don’t close out your oil contract, you get a call from the exchange telling
you that” your oil is waiting for you in Brisbane, what would you like to do
with it?” What has happened to send oil below $0 is that oil tankers all over
the world are arriving at their respective destinations and someone needs to
take delivery. The issue is that no one is collecting and storage is full so
people ended up being paid $40 per barrel to take possession of the oil. The
collapse of oil sent equities around the world broadly lower with US equities
like the S&P dropping 2.2 and Dow Jones falling 2.4%. Ahead today we have
Governor Lowe later this afternoon giving an economic update which should offer
some insight into the effectiveness of the recent raft of stimulus packages. It
will be keenly watched by traders so expect some movement if Lowe comes out
particularly doom and gloom.

USD

AUD/USD has fallen down to 0.6342 from coming off a 0.64 high as
the market shifts gears and sells risk. Yesterday the US Dollar was slightly
softer which helped AUD rally however by the time news started rolling in that
oil supply was overwhelming demand and storage the turn came quickly. On the
data front the Chicago Fed National Activity Index for March fell to -4.149,
down from +0.06 and below expectations of -3.00. Little reaction to the data
with markets fairly subdued in early NY trade. Wall St weaker from the open
meanwhile, with early losses of 2% for the Dow and S&P while the Nasdaq
fared a little better and turned 1% type losses into small gains over the NY
morning. No other major news to report.

EUR

AUD/EUR has also dipped down from the highs of 0.5880 down to
0.5835 with the oil collapse despite the recent reports coming out of the Zone
painting a bleak picture. French officials said that the confinement has
impacted GDP by €120 billion over 8 weeks. The Bank of Spain said they expect
the economy to shrink by between 6.8 - 12.4% in 2020. The German ZEW Economic
Sentiment release is penned for later today however with the grim reports
coming out the jury is out whether currency markets will pay attention.

GBP

Meanwhile, the AUD managed to hold onto most of yesterday’s
gains against the Pound, reaching a high of 0.5120 before coming back down to
0.51 at the time of writing. Pound Sterling has been holding fairly steady in
the last few days and in the absence of data, it’s kept price action fairly
subdued. Looking ahead tomorrow we have the UK CPI which could help encourage
movement.

NZD

AUD/NZD continues to
come off the highs we saw last week with the AUD continuing to drop down to
trade around 1.05 at the time of writing. New Zealand has less exposure to
commodities than Australia does so naturally then the Kiwi Dollar comes off
best when turbulence kicks off in the commodity around. No other data to
report.