Currency Update - Tuesday 17th March 2020
AUD
Markets continue to spiral as the Covid-19 pandemic worsens with
governments around the world initiating lockdowns and closures. Yesterday saw
the AUD take heavy losses with the selling focused around AUD/USD. Overnight
was much kinder to the AUD with the losses against the majors fairly light all
things considered. Equity markets took the brunt of the carnage with most
markets around the world is genuine freefall. Oil saw renewed selling pressure,
moving 10% lower in late trade as the Saudi-Russia oil war continues to rage.
US 10 year yields were 23 basis points lower and more broadly currency markets
traded between extremely wide ranges highlighting the wild volatility we’re
dealing with. There was a huge miss on Chinese industrial production which
added to the AUD’s woes with the official reading coming in at -13.5% vs a -3%
expected. Chinese fixed asset investment also contracted at an unbelievable
-24.5% rate against the -2% expected. Risk assets like the AUD at this point
have no clear floor and present massive downside risk as the global economy
unravels. Thursday's RBA meeting looming large, markets hoping for at least
another 25 basis point cut, potentially a QE package.
USD
AUD/USD suffered a horrific day yesterday with markets trading
the pair from 0.63 down to below 0.61 where the pair currently trades. The
overnight session was surprisingly kind to the AUD which moved less than a
percent lower which considering the circumstances is a relatively merciful
evening. US data has already begun to unwind with US Empire Manufacturing for
March falling to -21.5 well short of expectations of +3.0. With the chaos in
markets there was little notice to the news that acted as nothing more as
confirmation of what we already knew. With the US still yet to experience the
full extent of the Covid-19 cycle there will be much more data misses and
economic contraction to come.
EUR
AUD/EUR continues to slowly erode, this time moving down to
0.5460 where it continues to sit at time of writing. The aggressive rate cut by
the Fed did little to reassure markets and, in many ways, the extreme reaction
has spooked traders and investors who only feel encouraged to continue selling.
The fear is that European economies will follow in China’s footsteps and suffer
similarly catastrophic levels of contraction. The heavy selling of the EUR
keeps AUD/EUR levels much more stable than other pairs though the AUD is
certainly getting the worst of it due to our economic links to China.
GBP
AUD/GBP has seen some incredible volatility over the past 7 days
but we’ve recently stabilised to a certain extent with markets trading the pair
just under 0.50 at time of writing. The UK has cracked down as the death
toll rises to 55, encouraging people to work from home wherever possible and to
avoid all pubs, clubs and social gatherings. There are fines for refusing to
quarantine or accept testing and members of the public including pregnant women
will soon be asked to self-isolate for 12 weeks.
NZD
The absolute drubbing the AUD has received against the Kiwi has
seen a small reprieve with the AUD finding some bids to move up to 1.0117 at
time of writing. The AUD actually dipped close to parity during the overnight
session before coming back up from the incredible low.