Currency Update - Wednesday 29th January 2020

AUD

The growing global risk aversion stabilised to some degree
overnight, assiting the Australian Dollar to hold its ground as markets
around the world find some reassurance in the global response to the
coronavirus outbreak. While the death roll in China rises, the outbreaks around
the world thus far appear to be contained and markets are now repricing risk
assets as the epidemic is cautiously downgraded in magnitude. Prime Minister Xi
commented that his country “faces a serious battle” which led to Asian equities
continue their move lower. Local equities took a hit, the ASX200 took a 1.3%
hit and closed back below the 7000 level. Elsewhere equity markets are
faring better with both US and European equities closing their sessions up – a
good indicator for improved risk appetite. Little in the way of data yesterday
however later this morning we have CPI which will be a significant input
towards the Tuesday's monetary policy decision which at this point is still
favouring unchanged interest rates (just a 22% chance of cutting rates
further at the moment).

USD

With risk cautiously re-entering the market, the Australian
Dollar has found some footing in its recent tumble, improving
sightly from lows of 0.6737 to trade at 0.6761 at time of writing. Ahead
of the NY session, an article quoting a top Chinese scientist who was
instrumental in discovering the SARS outbreak suggested that the Coronavirus
outbreak would peak in 10 days. This was seemingly enough for US futures to add
to their gains while the antipodeans moved off their lows. On the data front US
Durable Goods Orders for December rose 2.4% to easily beat expectations of
+0.3% though core measures were significantly weaker than expected. Little
reaction to the data with Wall St up by around 0.3% in early trade. US Consumer
Confidence for January rose to 131.6 to beat expectations o 128.0 with the
Expectations and Present Situation sub-indices both moving higher. The Richmond
Fed Manufacturing Index for January rose to 20, up from -5 and better than
forecasts of -3. The Fed is in action tonight with their interest rate decision
and press conference at which they're widely expected to leave rates
unchanged at 1.75%.

EUR

With the exodus of risk appetite somewhat subsiding,
AUD/EUR has moved off recent lows to trade at 0.6135 at time of writing.
While the move is marginal it is a sign of a things to come if indeed the
coronavirus stays contained. Euro had a fairly quiet data
calendar overnight, the Spanish Unemployment Rate mercifully improved from
13.9% to 13.8%, and tonight's calendar is even quieter. Expect markets to
primarily trade around news on the virus, with more international
outbreaks an outcome that would lead to more heavy selling of risk.

GBP

Overnight Aussie Dollar stopped the rot against GBP,
marginally improving to open just below the 0.52 handle this morning.
Pound has come off the boil as traders attempt to predict the Bank of England’s
next move following a stagnant retail sector in January. Yesterday we saw the
monthly data published by the Confederation of British Industry (CBI)
revealing that retail sales volumes in the UK stayed unchanged for the
third straight time in January. With a weak retail sector, the Bank of England
will be under greater pressure to cut rates this week and while markets are
still factoring in a hold, the added pressure is contributing towards GBP
weakness. No other data to report for rest of today.

NZD

AUD/NZD continues to trade sideways with markets trading the
pair around 1.0333 at time of writing. The coronavirus outbreak has hit the
antipodeans hard and while the Kiwi Dollar has gotten the better of the Aussie
in recent months, the past few days have seen something of a recovery for AUD.
Inflation data today will be a big event for the pair so a great opportunity
for market orders.