AUD falls as probability of rate cut increases and markets dump risk assets
Wednesday 19 February, 2020
Daily Currency UpdateAUD - Australian DollarThe Australian dollar fell through trade on Tuesday as risk off sentiment and a dovish RBA minutes prompted a correction in the recent short-term upswing. The AUD slipped below 0.67 touching intraday lows at 0.6675 as markets appetite for risk shifted following Apple’s announcement it does not expect to meet revenue targets through Q1 2020 as the coronavirus dampens demand for sales in China. Apple’s revelation highlighted broader market concerns the coronavirus will have a direct deflationary impact on global consumer demand and economic growth forecasts. As demand for risk faltered the RBA minutes confirmed the RBA’s bias to further rate cuts and concerns surrounding the broader impact of the Coronavirus. The board recognised the outbreak posed significant downside risks to outlooks for China and, as a direct result of Australia’s high-level integration into the Chinese economy, there was heightened concerns the domestic growth outlook will be forced lower. While supports remain in play on moves approaching 0.6680 our attentions now turn to todays quarterly wage price index and Thursday’s employment data. The RBA has long touted strength across the labour market as a key marker supporting neutrality in monetary policy. Softness across wage growth and a downturn in labour market performance could prompt a move below key technical supports as markets move to price in a rate adjustment. We expect resistance on moves above 0.6730 with a consolidate and extended move below 0.6680 possibly signalling a deeper downward correction.
Key MoversSafe haven assets surged through trade on Tuesday with the Japanese Yen outperforming most major counterparts. The Great British Pound edged higher as the new Finance Minister Rishi Sunak announced the budget would be unveiled as planned on March 11. Shrugging aside concerns conflicting views between the UK and EU would derail trade negotiations sterling pushed back through 1.30, touching 1.3047 before correcting lower into the mornings open.The Euro tumbled through 1.08 Tuesday following a ZEW assessment of broad based German confidence. Sentiment among investors deteriorated well beyond initial estimates in February and highlighted concerns Europe’s largest economy and engine room is running out of steam. The poor print amplifies concerns services and manufacturing PMI data due Friday will show an alarming slowdown in broader European production further dampening growth expectations and widening the gap between the US and EU outlook. The combined currency has lost almost 4% through the year to date, with little incentive for investors to unwind recent shorts and carry trades. Having touched 1.0787 attentions now turn to Thursdays’ ECB monetary policy meeting minutes for any sign increased QE is imminent.
- AUD/USD: 0.6630 - 0.6730 ▼
- AUD/EUR: 0.6150 - 0.6230 ▲
- GBP/AUD: 1.9330 - 1.9780 ▲
- AUD/NZD: 1.0380 - 1.0530 ▲
- AUD/CAD: 0.8790 - 0.8890 ▼