Currency Update - Monday 6th April 2020
AUD
It’s still early days for many western countries who are in
various stages of dealing with the pandemic and Friday night's US official
employment data gave us an insight in to the economic damage we can expect as a
result of the pandemic. Non-farm employment changes blew past expectations of
-100k with a -701k official reading and the US employment rate registered an
extraordinary move up to 4.4% (smashing expectations of 3.8%). Sentiment nose
dived with the news which caused heavy selling in risk assets with pressure on
US equity markets and the AUD into the weekend. Acting as some support for the
AUD is a rebounding oil price which managed to add 14% to finish up the week.
No data due locally today and China is enjoying a bank holiday so volumes may
remain thin during the Asian session. Tomorrow the RBA meet however no
surprises are expected there, interest rates are already at the lower bound as
indicated by the RBA themselves. Perhaps Wednesday's Financial Stability Review
and OPEC meetings have the potential to move AUD around more substantially.
USD
The US Dollar Index is on the rise after the turn in risk
sentiment and Friday saw the AUD traded down to 0.5980 before recovering just
above the 0.60 handle where it opens this morning. The situation in the US is
worse than anywhere in the world with the pattern of exponential fatality
growth in the US continuing unabated with their death toll expected to rise by
the tens of thousands in the coming weeks. As the situation worsens, so too
does the economic damage that obliterates investor confidence and weakens
appetite for risk assets like the AUD. US interest rates are still hovering
around their historic lows with some pundits expecting a move to the negative.
In one positive piece of good news there is a dropping death rate in Europe
which is lifting US equity futures by 1% which may be a sign of things to
come as other countries around the world come out the other side of the
pandemic cycle. A quiet start to the week without much other US data to report.
EUR
With risk sentiment low there’s little appetite for either EUR
or AUD, so AUDEUR is trading fairly flat with markets trading the pair around
the 0.55 handle. Last week we saw the release of services PMI numbers for March
which kicked off with Spain coming in at 30.8, Italy at 17.4 and France at
27.4. Germany printed at 31.7 with the EZ reading of 26.4 the biggest monthly
contraction on record. The grim numbers reflect the situation in Europe as far
as the pandemic is concerned however the good news is that the death rate is
beginning to drop. While the death toll in Spain rose 10,935, the death rate
was the lowest in 4 days and so too in Italy we’re clearly seeing a rapidly
falling death rate. These are optimistic signs that both the lock downs are
working and also provides us with some guidelines on how long the cycle lasts.
GBP
Similarly impacted was the Pound that remains under pressure
which is holding AUDGBP rates fairly steady around the 0.49 handle. This
morning we received news that Boris Johnson has been admitted to hospital since
contracting the virus late March however so far it appears that he should be
fine. UK services PMI had a similarly grim reading as in continental Europe
with a reading of 34.5 however there wasn’t too much attention paid to the
data. No other data to report.
NZD
The Kiwi got the better of the AUD following the US employment
news that slammed risk however with both currencies so heavily sold, movement
was limited to a fairly tight 25 pip range around 1.0240 (where we trade now).
So far New Zealand has done a fantastic job in combating the pandemic with no
new deaths and cases limited to just over 1000 with the aggressive lockdown
policy seemingly working to shut down the spread.