Currency Update - Wednesday 9th October 2019

AUD

The Australian Dollar has been trading extremely flat this week bound within a tight range across the majors in the absence of major news or data. Risk sentiment took a turn against the Aussie Dollar overnight with investors getting nervous ahead of the impending trade negotiations between China and the US. The Chinese Ministry of Finance said that it strongly opposes the US blacklisting companies. They went on to say that they will safeguard their interests and will retaliate if the US takes any punitive action. The Australian Dollar took some losses against the safe haven currencies such as the USD and JPY, erasing the small gains made yesterday. We have the Westpac Consumer Sentiment coming out this morning but outside of that expect the Aussie Dollar to continue to trade on sentiment.

USD

The Aussie Dollar spent much of yesterday making small creeping gains on the USD however the fears over trade negotiations between US and China took hold of the market and sent the Aussie Dollar back down to a low of 0.6724. The hard-nosed remarks made by the Chinese government in reference to possible economic attacks by the US whipped up fears in the market and risk assets such as equities and the Aussie Dollar both took the hit. Additional USD strength came from FOMC Chairman Powell who commented that they would “consider yield curve control if needed in future downturns”. He added that the Fed will act appropriately to support continued growth in the US economy and that the Fed will soon announce measures to add reserve supply over time. He stressed however that increasing the balance sheet for reserve purposes should not be confused with QE. Looking ahead we’ve got a big USD data release overnight with Crude Oil Inventories, Fed Chair Powell’s commentary and the FOMC Meeting Minutes waiting for us when we open tomorrow morning.

EUR

Another flat day of trading against the Euro, the Aussie tightly bound in a 17 pip range so far this week, opening at 0.6141. German industrial productions numbers were released before the open, beating expectation with a 0.3% increase in August. Little reaction in currency markets but it comes as some relief to the beleaguered German economy that seems determined to enter a technical recession. In Brexit news European Parliament President Sassoli spoke after a meeting with UK PM Johnson, advising that there was no progress and there were two options left, an extension or no deal. He reiterated that the EU would like to come to an agreement but not consider a deal that would undermine the Good Friday Agreement and the Customs Union. He finished to say that proposals will be considered until the last minute and that if there was a “will and a proposal” then the EU will consider it. There’s little EUR data coming out that should affect the currency markets so expect the Aussie Dollar to continue trading flat for the time being.

GBP

The Aussie Dollar has lost some ground overnight with Pound Sterling taking a bullish run up to 0.5513 amidst the Brexit drama as risk sentiment takes a turn for the worse. There is little UK data and so Brexit has dominated the headlines. The British government has continued its spirited rhetoric confirming that if the current Brexit offer to the EU fails, it won’t be revived. This appears to be last chance for a Brexit deal as we grimly march towards 31 October. Meanwhile, the Johnson government continues to look for ways to circumvent the Benn Act that has compelled them to request an extension. The primary breakdown in a deal between the EU and the UK seems to heavily feature the issue of Northern Ireland. The EU has demanded that Northern Ireland remain in the Customs Union and this has become a sticking point for the UK government. The UK has some significant data out this week with tomorrow featuring UK GDP m/m as well as Manufacturing Production m/m in addition to a slew of other lesser data releases.  Expect a fairly flat day of trading for the Aussie against Pound Sterling as investors prepare for day of big data tomorrow.

NZD

The Kiwi Dollar had a similar trajectory as the Aussie Dollar after spending much of yesterday making gains on the USD before taking a tumble as appetite for risk quickly dried up. The Kiwi now opens at 0.6295 against the USD, roughly where it has been sitting for much of this week. Outside of the Business NZ Manufacturing Index there’s little data out this week for the Kiwi so expect the NZD to be largely traded on sentiment.