Currency Update - Tuesday 3rd March 2020
AUD
AUD bounced overnight as investor confidence was buoyed on news
that central bankers and economic ministers from the G7 nations would meet on
Tuesday to discuss plans on how best to combat the impact of the ongoing
Covid-19 outbreak. Local equities are set to open higher also, following
positive leads from the international bourses with hopes of a coordinated
central bank action to counter the economic impacts of the outbreak. A big day
ahead with the RBA all but sure to cut interest rates by 25 basis points at
2.30pm, and probably offer an assurance of further cuts to come if necessary.
Markets have just over 25 basis points of cut factored in, the tone of how the
RBA addresses the impacts of the outbreak in their statement will be important
for AUD movement after the decision. Building Approvals and Current Account
figures will also provide the curtain-raiser at 11.30 this morning.
USD
Signs of life finally appear for the AUD as risk sentiment
received a much-needed boost, opening at 0.6531 this morning, having gained a
full percent from yesterday’s open. US equities overnight rallied strongly, the
Dow Jones posting 5% gains (the biggest one-day gains on record).The prospect
of coordinated central bank monetary easing had US 2yr yields down 10 bps and
the US economic data was also soft; ISM Manufacturing PMI printing at 50.1
(50.5 expected). All of this opening the door for our local unit to par some of
the recent losses and to the delight of importers it took advantage. There is
no US data due tonight however markets are eager for details around a how
central bank coordination could play out in the battle against Covid-19
economic downturn. The recent increase volatility is likely to hang around.
EUR
AUD opens flat here at 0.5861 after a seesawing last 24 hours
which saw AUD regain the 0.59 handle albeit for a few hours. Holding the AUD
back were the Manufacturing PMIs from Europe which were all better than
expected and compared to China’s equivalent numbers on Saturday, were glowing.
Of course the effects of the outbreak are still likely to worsen yet in Europe
so the comparison probably isn’t fair. The OECD cut global economic forecasts
for 2020 to 2.4% from 2.9% and also warned that there was a risk of recession
in Europe in their downside scenario. Tonight we’ll see the CPI Flash Estimate
for The Zone as whole, the recent upward momentum is tipped to evaporate with
an unchanged 1.4% result expected.
GBP
The overnight improvement in risk sentiment boosted the AUD over
1% to open today at 0.5117. UK data last night was benign, Final Manufacturing
PMI printing a touch above expectations at 51.7. Tonight the BoE’s Gov Carney
is due to testify before the House of Commons’ Treasury Committee, his comments
will be closely scrutinized for clues towards a coordinated response from
global central banks to the Covid-19 outbreak. The improvement in risk
sentiment is fragile and could turn on a dime, or a penny in this case.
NZD
AUD has pushed higher against NZD, opening at 1.0446 this
morning. This has been a closely fought battle for a number of weeks, today’s
RBA meeting has the potential to shift this cross into another range. Fonterra
hold their fortnightly milk auction tomorrow morning although this will take a
backseat to central bank speak over the next 24.