Currency Update - Tuesday 7th January 2020
AUD
The ongoing tension in the middle east continued to simmer
overnight but we did see some reversals in some key correlated assets with oil
drifting back to flat after earlier trading +2.4% while equity markets found
themselves in the black after previous losses. Gold also came off after
previous gains with traders discounting some of the initial shocks as US and
Iran continue to rattle their sabers. Iran has promised retaliation and Trump
has warned that any military response will bring about further US attacks. Risk
is certainly off while the standoff continues however some scepticism over
whether it will culminate in any actual military engagement has certainly
helped risk assets like the Australian Dollar preserve value. Ahead today is a
relatively quiet day on the data front so expect the Iranian-US stand off to
dominate currency movements, particularly against the US dollar.
USD
The Australian Dollar continues to come under pressure as
US-Iran tensions hit risk assets with markets trading AUD/USD at 0.6939 at the
time of writing, above the low of 0.6925 we saw during the overnight session.
The Dow Jones and S&P logged modest losses due to the tense situation
though, given the fact that stocks were at record highs, the souring of
relations in the Middle-East has acted as a convenient excuse for traders to
take some cash off the table. With US equities already coming back to black
underlines the relative strength of the indices. With that said, the greenback
has been weak in recent weeks and with the US Dollar index in the red this
could be a continuation of the wider bearish move. On the data front the US
December Services PMI was revised up to 52.8 from an initial reading of 52.2.
The Composite PMI was also revised up to 52.7 from 52.2 which helped marginally
firm the greenback. A quiet day ahead on
the data front with nothing of significant import scheduled for release.
EUR
Some key data points helped lift the Euro amid the standoff in
the Middle-East and led the Euro to get the better of the Australian Dollar
with markets trading the pair just below 0.62. Retail sales first came to the
rescue early in the European session with the reading jumping by 2.1% to
comfortably beat the forecast of +1%. We also saw the release of the service
PMI numbers for December. Spain kicked things off at 54.9, beating the forecast
of 53. Italy printed at 51.1 (50.9 expected) with France at 52.4 which matched
the flash. Germany improved to 52.9 (52.0 expected) the EZ composite measure
coming in at 52.8 (52.4 expected). Ahead tonight we have inflation data for the
Eurozone in the form of CPI Flash Estimates.
GBP
The Australian Dollar is under pressure once again against Pound
Sterling with the combination of strong UK PMI data helping firm the Pound and
the Iranian standoff putting risk assets under pressure. The UK final services
PMI report came in at 50.0, which was an improvement on the flash reading of
49.1. A quieter day ahead for Pound Sterling with only Housing Equity
Withdrawal set for release today and this should be relatively low impact.
NZD
The Kiwi Dollar has, unlike their test cricket side, bounced
back against the Aussie with AUD/NZD coming off highs of 1.0440 down to 1.0402
at the time of writing. The Kiwi was a popular bid for traders overnight with
its clear macroeconomic schedule keeping the currency steady while other
currencies came under fire in what was a turbulent 24 hours of trading. A quiet
day ahead with no data to report.