Currency Update - Wednesday 25th March 2020

AUD

In a fairly unexpected turn, risk sentiment is reversing in
global financial markets with risk assets like the AUD staging a recovery from
the lows experienced last week. US equities saw a big lift with the S&P500
gaining 9.4% while the NASDAQ and Dow Jones posted gains of 8%. Markets are
feeling more confident with the recent raft of stimulus and are somehow looking
past the lockdowns that are savaging the global economy around the world. There
is a growing expectation that the US government will pass a bill to approve a
USD 2 trillion stimulus package and this is encouraging investors to do some
bargain hunting. The AUD is adding to the reversal that we first saw emerge
towards the end of last week which has seen the AUD lift over 9% against both
USD and EUR. Markets are responding positively but the question remains whether
this optimism will last once we start seeing the effects the lockdowns are
having in our regular economic data. AUD’s last employment data signaled a move
from 5.3% to 5.1% and an impressive new job showing. The next unemployment data
release should offer us a glimpse into the damage we’ve sustained in March and
that’s not set for release for another few weeks.

USD

As we open to a new day in lockdown the AUD continues to find
bidders with markets trading AUD/USD close to the 0.60 handles. Investors are
relenting on the panic selling and are finding confidence in the recent
stimulus packages enough to restore some risk to their books. The G7 released a
statement in which they said they would do “whatever is necessary” to restore
economic growth while in the US, House Speaker Pelosi said on CNBC that there
was real hope that a stimulus deal would be agreed in the coming hours. US
Manufacturing PMI for March fell to 49.2 from 50.7 through this was above
expectations of 43.5 with Services down to 39.1 from 49.4 to be worse than
expectations of 42.0. The Composite meanwhile fell from 49.6 to 40.5. Released
shortly afterward, February New Home Sales fell by 4.4% to 765k though this was
better than expectations and there were also positive revisions. Looking ahead
we have simply no way of knowing where market confidence will go and if this is
simply a honeymoon phase coming fresh off the back of governmental intervention
or if this is a market that will quickly resume panic selling once the damage
starts to accumulate.

EUR

AUD/EUR is on the move with markets trading the AUD testing the
recent highs seen last week as markets trade the pair at 0.5526 at the time of
writing. We saw a glimpse of what the coronavirus is doing to Europe with the
PMIs from yesterday however there remains a muted reaction from currency
markets. France was down from 49.8 to 42.9 to beat 40.6 forecasts. Services
even worse, down from 52.5 to 29.0 and a new record low in the survey’s 22 year
history. In Germany, manufacturing fell 2.3 pts to 45.7, beating 39.1
forecasts, while services plunged from 52.5 to 34.5 & its lowest level
since 2009 . For the Eurozone as a whole, manufacturing fell from 49.2 to 44.8
[and 8 year lows] , services from 52.6 to 28.4 , with the composite seeing its
largest monthly decline to a record low of 31.4. Important to note just how low
the expectations were set so while the data is appalling it remains better than
what markets were expecting.

GBP

AUD/GBP volatility continues with the AUD coming off the highs
we saw yesterday against the Pound to trade around 0.5070 at the time of
writing. The UK remains in a tight lockdown with increasingly urgent calls by
the government for the general public to adhere to the social distancing
guidelines set out. The UK saw the release of their PMI’s yesterday which came
in predictably poor with Manufacturing down from 51.0 to 48.0 through this beat
expectation of 45.0. Services were dire, printing at 35.7, down from 53.2 and
below expectations of 45.0 with the Composite at 37.1, down from 53.0 and below
expectations of 45.0. Little reaction from the data from currency markets who
continue to be utterly dominated by fluctuating risk sentiment.

NZD

AUD and NZD are both currencies on the move higher against the
majors however AUD/NZD remains fairly gridlocked since yesterday with the AUD
testing 2 week highs against the Kiwi during the US session and again now in
the past few hours. Significant volatility here reflecting the lack of
liquidity but the pair is traded 1.0250 at the time of writing.