Currency Update - Friday 2nd August 2019
AUD
Today AUD has fallen to historic lows after the China-US trade war is inflamed yet again with President Trump announcing additional tariffs of 10% on $300b worth of Chinese goods. Risk assets were the big losers with the S&P500 dropping 1% and oil plummeted 7%. Australian retail sales data for June/Q2 are also due later this morning so if there is going to be some bounce back we can look to this data point for some support. With the AUD in historic lows the traditional thinking would be that there’d be significant bidding support for the beleaguered Australian dollar however time will tell whether there is an appetite for risk assets in these uncertain times.
USD
Seemingly antagonised by the US Fed the timing of the new round of tariffs suggests that Trump is striking back after his disappointment with the US Feds’ rate cut. Powell’s comments confirmed that the US Fed is taking the softly softly approach, not wanting to ease rates too much too soon. It confirms that they were not factoring in a US recession that a more drastic rate cut would require. The move by Trump paired with US Markit Manufacturing PMI beating expectations has helped the USD advance across the board, making gains on the AUD, EUR, GBP and CAD.
EUR
The Euro was just starting to come off previous lows in early London before the wind was taken out of its sales by weak European manufacturing PMI numbers for July. Spain, Germany and Italy surpassed expectations while France missed and this was enough to send the EUR lower against the greenback. This, combined with Trump’s tariffs has acted to send the EUR into the lowest levels against the USD in years. The EU has another shot to make some ground back before week’s end with June retail sales out later today.
GBP
British news is dominated by the Bank of England’s unanimous decision to leave rates on hold. In their press release they shared the outlook that a “smooth” Brexit could prompt a gradual and limited rise in interest rates. A no-deal Brexit presents a greater unknown with rates possibly moving in either decision. Despite some uncertainty they have raised both growth and CPI forecasts for 2022. This came with a warning, stressing the issues involved with a no-deal Brexit with Carney stating that the chances of a no-deal Brexit have increased and impact on trade tensions have been larger than they thought. Following the decision the Pound initially fell before quickly recovering and exceeding pre-announcement levels.
NZD
It was very much the same fate for the AUD as the NZD as the ANZACS were squeezed with the Kiwi in freefall against the greenback. The latest round of tariffs has sent the Kiwi down to 0.6550 levels with little support between here and 0.6520. As a more bearish channel emerges it seems likely that the Kiwi will have some work to do to even prevent more downside movement, let alone recovering the recent losses