FX Weekly Update 04 Sep 2020

The Week in Review

The AUD reached fresh 2-year highs of 0.7414 early this week, although has since retraced down to the 0.7250s off the back of a brief resurgence in the USD. US stocks had a similar performance, with the S&P500 reaching fresh highs of 3588 before falling 3.5% last night. The ASX has had more muted performance this week and opened down 2.5% this morning following the US. On the economic news front the RBA met on Tuesday announcing an expansion and extension of their Term Lending Program, and Australia officially entered a technical recession for the first time in nearly 30 years.



As widely anticipated the RBA left the cash rate and 3Y yield target unchanged at 0.25% on Tuesday. One notable change to their policy package was an increase in the Term Funding Facility – in size and duration. The Term Funding Facility was a package implemented in March this year to support credit growth in the business sector – particularly for SMEs. It offered Australian ADIs funding for business customers at a fixed rate of 0.25% for 3 years – also the reasoning behind the RBA’s targeting of the 3Y government bond yield at the same rate. The additional funding will be 2% of each ADI’s outstanding credit and be available until the end of FY21. With short-term funding rates already suppressed well below the cash rate due to excess cash reserves (overnight rates are around 0.13%), the RBA is not expected to cut the cash rate target further in the near term.

Australian Recession

Australia’s Q2 GDP number was released on Wednesday and came in slightly worse than expected at -7% Q/Q (instead of the expected -6%). Therefore, as expected Australia met the requirements for a technical recession (two consecutive quarters of negative growth) – the first recession since the early 1990s. The AUD did not react significantly to the news, with the broad USD weakness and risk on/risk off narratives being more front of mind for markets.

Australia Q/Q GDP Growth

French Stimulus

French President Emmanuel Macron unveiled a €100b stimulus package to support the domestic economy overnight, dubbed the “France Relaunch”. The plan includes wage subsidies, business tax cuts and funding for environmental projects. It aims to move away from the widespread COVID-induced emergency stimulus packages governments have unveiled and instead address longer term weaknesses the French economy had to prompt further investment and job creation.

The Week Ahead

Key events to watch for next week:

  • US Non-Farm Payrolls – Tonight 10.30pm
  • US labour market data is due out tonight, with analysts expecting the unemployment rate to drop from 10.2% to 9.8% with a gain of 1,375,000 jobs.
  • ECB Meeting & Policy Announcement – Thursday 9.45pm
  • US CPI – Friday 10.30pm


Horobin, W. and Nussbaum, A., 2020. Macron Throws 100 Billion Euros At French Economic Relaunch. [online] Bloomberg.com. Available at: <https://www.bloomberg.com/news/articles/2020-09-03/macron-throws-100-billion-euros-at-french-economic-relaunch?sref=92Is2d7a> [Accessed 4 September 2020].

BBC News. 2020. Australia In First Recession For Nearly 30 Years. [online] Available at: <https://www.bbc.com/news/business-53994318> [Accessed 4 September 2020].

Lowe, P., 2020. Statement By Philip Lowe, Governor: Monetary Policy Decision. [online] Reserve Bank of Australia. Available at: <https://www.rba.gov.au/media-releases/2020/mr-20-20.html> [Accessed 4 September 2020].