Foreign Currency



AFEX Update:

5 December 2018

A tale of 2 distinct trading sessions on Tuesday where optimism reigned initially before risk aversion swept through the markets in overnight trade.  What happened?

  • Optimism – markets were initially reveling in the post-G20 positivity.  This helped the AUD make strong gains:
    • AUD/USD traded at the highest level since August, just below 0.7400.
    • AUD/EUR re-attempted another move back above 0.6500, although fell just below at 0.6490.
    • AUD/GBP re-attempted another move back above 0.5800, although fell a couple of points below.
  • Pessimism – risk aversion spread like wild fire during the US trading session.  Fears of a slowdown in economic growth saw bond yields invert (short-dated bond yields were higher than longer-dated bond yields) as investors flocked to the safety of 10-yr and 30-yr bonds.  The reason this is talked about is because when we review the last major recessions in the global economy, they were all preceded by an inversion of bond yields.  Whilst I agree that the global economy is skating on thin ice, particularly given the pain from the GFC was largely averted, or better put, deferred, due to excessive central bank money printing (The GFC was a debt crisis.  Central banks fought it with more debt…hmmmmm!) at this point we are not seeing immediate signs of danger in the global economy.  I’m sure they will come in due course, but it’s the fear of the precedent that drove the negative sentiment overnight.

Adding to the pessimism were comments from Fed voting member John Williams, who still expects to vote for multiple rate hikes next year.  This flies against recent comments from Jerome Powell and Richard Clarida who both suggested rates were close to “neutral.”

  • Currency reaction:
    • AUD/USD dropped down to 0.7325, before settling just above.
    • AUD/EUR fell slightly, down to 0.6465.
    • AUD/GBP dropped down to 0.5750, before settling just above.
  • UK – MPs have voted to hijack Brexit if Teresa May’s withdrawal agreement is defeated – as is almost certain.  Furthermore, it was found the Conservative party was in contempt of parliament for refusing to publish legal advice it had received from the country’s top law office about the proposed Brexit terms.

All of this political uncertainty is weighing on the GBP.  It touched 1.2660 before settling at 1.2715.  1.2660 was equal to the lowest level since June 2017.  It had earlier surged to 1.2840 after the European Court of Justice suggested the UK could opt to remain if they wished.
I expect sterling volatility to remain over the coming weeks.

Whilst domestic data is important for the health of the Australian economy, most of the AUD influence is coming from offshore.  The Fed speeches are important and the US employment data on Friday are my key watches.  Also keep a watch on the bond markets for their influence on sentiment.
I’m still of the opinion that the AUD can make gains short-term.  Initial target is the 200-day moving average which currently sits near 0.7415.  Longer-term, I’m bearish Aussie.  I think at some stage in the first half of 2019, we will see the Aussie re-test 0.7000.


If you would like to discuss the currency markets in greater detail, please contact James King on 03 8692 4404 or


This advice is general in nature and does not take into account your objectives, financial situation or needs.  You should consider whether the advice is suitable for you and your personal circumstances.

James King

Head of FX Dealing – Victoria


Call us on 1 800 823 653