FX Weekly Update 7 Aug 2020

The Week in Review

The AUDUSD traded in an upwards trend this week to a high of 0.7241 amidst the continued USD sell-off, as investors digested growing political risk with the impasse in Congress over the second stimulus bill. The DXY (USD index) fell roughly 5% in July – its worst month in a decade. One of the
standout performers of this rally has been gold which has set record after record in its run this week – having now traded as high as USD 2072/oz. US equities had a good run as well – with the S&P500 gaining 2.4% to 3351 (now only 1.25% from its all time high set in February). The ASX has also gained close to 2% but has been fairly rangebound since June.

Australia
Coming up later today at 11.30am is the RBA’s quarterly Statement on Monetary Policy, which among comments on their ongoing monetary policy efforts will detail their forecasts for the major economic data points. This will be significant considering the last time the public got a detailed glimpse of the RBA’s recovery forecasts was back in May, and the state of the pandemic has arguably become worse within Australia on an economic and public health level, given the significant lockdowns in Victoria.
PM Scott Morrison told reporters on Thursday morning that the Treasury expects the GDP cost of the Victoria lockdowns to be $7-9b in Q3 (albeit with considerable uncertainty). He also noted that the expected effective unemployment rate, which had improved in recent months to 11%, was going back towards 13% (ABC, 2020).

US
The key story for the US this week has been the stimulus bill negotiations in Congress, and the impasse between the Democrats and Republicans. President Trump has said that he would pass an executive order to extend unemployment benefits, eviction protections, and pause payroll tax if Congress could not pass something before their deadline tonight. The deadline exists because Congress is meant to go on a 1-month recess after today, although there’s a chance they forgo it to continue negotiations.
If a stimulus bill fails to pass this week, Congress goes into recess, and Trump is unable to pass an executive order, it would have disastrous effects on the economic recovery from the pandemic in the US and could shift market sentiment into a risk-off tone (Taylor, 2020).
US labour market data is due out tonight as well – potentially coinciding with a result from Congress so there could be some resulting volatility in markets. Analysts are expecting a small decline in the US unemployment rate to 10.5% from 11.1%, and job growth of approximately 1.5million. The unofficial job growth reading from payroll software provider ADP earlier this week showed a significantly worse than expected number – +167k versus the expected +1.2m. Despite this, there is very often a lot divergence between the unofficial estimates and the official numbers, so its not necessarily indicative of tonight’s number.

The Week Ahead

Key events to watch for next week:

  • Outcome for the US Stimulus Bill – throughout next week
  • RBNZ Policy Meeting – Wednesday
    One of the key things investors are looking out for is whether the RBNZ will add foreign
    bonds into their existing QE program as a way to suppress the NZD.
  • Australia Labour Market Data – Thursday
  • Joe Biden’s VP Nomination / Running Mate
    Joe Biden has been conducting interviews with the top contenders for his 2020 election
    running mate, arguably the top three being Kamala Harris, Susan Rice, and Karen Bass. He is
    expected to announce his pick in the coming days.

ABC, 2020. PM Suggests $9 Billion Cost Of Stage 4 Restrictions In Melbourne. [online] Abc.net.au. Available at: [Accessed 7 August 2020].

Taylor, A., 2020. Second Stimulus Check Updates: President Trump, Majority Leader Mitch Mcconnell Huddle With Coronavirus Relief Talks At Risk Of Collapse. [online] chicagotribune.com. Available at: [Accessed 7 August 2020].