AUD Under Pressure with Anxious Risk Environment

AUD

A heavy risk-off mood persists after concerns about sustained growth and Covid-19 woes meant that the Aussie Dollar was sold off heavily against most majors yesterday. Risk aversion meant that investors were also moving away from US Equities, with the Dow Jones, S&P 500, and Nasdaq all in the red trading -0.7%, -0.9%, and -0.7% lower respectively. Commodities also failed to support the AUD with Gold down -0.1%, Iron Ore -0.2%, and Copper the biggest loser, down -1.2%. The RBA’s Governor Lowe tried to confirm that the recent adjustments in the bond purchases aren’t a sign of rate hikes, but didn’t gain any major response. What could have been weighing in heavier was Prime Minister Scott Morrison speaking at the same time trying to placate growing Covid-19 concerns as Sydney’s lockdown extends with little signs of improvement. Looking ahead this morning, China’s Consumer Price Index (CPI) and Producer Price Index (CPI) for June could help pullback the AUD, if the inflation gauges defy recently downward trajectory. Forecasts suggest the CPI remain unchanged at 1.3% YoY, whereas PPI could ease to 8.8% from 9.0% previous readings.

USD

The AUD/USD slid to the lowest levels we’ve seen since early December, trading at 0.7431 this morning. US weekly jobless claims were worse than expected at 373k, not able to meet the expectations of a decline to 350k. While confirming that the Covid-19 resurgence poses a downside risk to the US economic recovery, Atlanta Federal Reserve President Raphael Bostic said, “A new rise in coronavirus infections driven by the more virulent Delta variant could cause consumers to ‘pull back’ and slow the US recovery”. His comments exemplifying the downward swing in risk sentiment for sustained growth out of what feels like an ever-lasting pandemic landscape. We’ll get more insight next week when the US releases their inflation data with Monthly Core CPI data coming out on Tuesday night.

EUR

The AUDEUR also took the plunge with the current rate of 0.6271 being the lowest we’ve seen since late January. European Equity markets remained heavy into the close, firmly in the red. The FTSE and DAX lost around 1.7% on the day with the CAC shedding 2% and the peripheral MIB and IBEX losing near 2.5%. The European Central Bank (ECB) has, after an 18-month review, said it would shift its inflation target higher from “below but close to 2%” to a flat 2% target. The anticipated ECB report showed policymakers had agreed to raise their inflation target to allow room to overshoot it when needed. The EUR showed little reaction to the policy shift that may allow the ECB to maintain ultra-loose monetary policy even as inflation rises. This evening, ECB President will issue further commentary which will be dissected by currency markets for any hawkish insight.

GBP

The AUDGBP is trading at the lowest level since late May last year, sliding into the .53s and currently sitting at 0.5387 this morning. The Sterling has found some support this week on British Prime Minister Boris Johnson's plans to end social and economic COVID-19 restrictions in England. However, the number of coronavirus cases could be set to climb from already very high levels as measures are relaxed which will keep currency markets anxious. In the latest post-Brexit update, reports over a tussle between the UK and the EU suggest that they are locked in a dispute over the size of the UK’s Brexit bill, after the EU suggested that Britain would be obliged to pay €47.5bn (£40.8bn) as part of its post-Brexit arrangements. Later today we'll see Industrial Production and May’s monthly Gross Domestic Product. Also speaking later today, BoE’s Governor Bailey commentary will be important for the Pound's immediate direction.

NZD

The AUDNZD was the only major currency pair that managed to survive the Thursday sell-off, with the Kiwis feeling the pain more than the AUD, currently trading higher at 1.0695 this morning. It’s been a sleepy week in macro-economic data from our cross-Tasman siblings, being at mercy to markets appetite for risk and concerns about Covid-19. It looks to continue that way, with little data release of note until some Quarterly CPI data next week Friday.