Chinese trade tensions know AUD off multi-month highs

Key Movers

The Euro rallied through trade on Wednesday, buoyed by reports the EU commission has proposed a revised 750billion Euro recovery fund. In its current format the recovery fund would make up to 500billion Euro available in grants and 250 billion available in loans, limiting joint debt obligations ins a bid to appease northern states opposed to propping up their embattled southern partners. Spain and Italy are said to be the big benefactors under the current scheme. Both countries have been devastated by the impacts of COVID 19 and would be due 80 billion in grants and further loan assistance. The Euro rallied through 1.10 to touch 1.1030 before edging back toward 1.0990/1.10. The proposed plan is far from a done deal with Austria, Denmark, Sweden and the Netherlands still opposed to such an extensive grant program. EU leaders from the so called frugal four hinted the current plan was unacceptable, but acknowledge it proffered a promising starting point for further negotiations. EU leaders next meet on June 19. Despite the short term uptick the Euro remains under mounting pressure as fiscal support lags that of other major economies. ECB president Christine Lagarde lamented the pace of current negotiations, claiming fiscal support was crucial in propping up the EU economy. With the ECB expecting the European economy to fall as much as 12% through 2020, joint debt and fiscal support is critical.
The JPY and CHF both fell as investors look past trade tensions as hopes of a quick rebound in economic activity continue to drive direction. With initial indicators suggesting a positive uptick in activity across major economies attentions remain affixed to any hint a second wave of infections will derail a H2 recovery, while increasing trade uncertainties between the US and China amid renewed concerns over Hong Kong’s proposed security laws have dampened the risk rally, softening the impact on haven currencies. The offshore Yuan fell further against the USD edging ever nearer 7.20 as the impacts of tariffs and trade weigh on the currency.
The Great British Pound retreated through Wednesday as the prospect of negative interest rates and declining optimism a Brexit deal will be reached before the end of the year weighed on the currency. Having fallen back below 1.23 there is little to suggest Sterling will enjoy any long-term upturn in the sort or medium term. Covid19 lockdowns are expected to remain in place for some time yet as the UK still struggles to grapple with the devastating impacts of this unprecedented health pandemic.