Volatility abounds; AUD test at 0.76 ahead of overnight sell-off
AUD – Australian Dollar
The Australian dollar opens again below 0.75 cents US this morning after 24 tumultuous hours in financial markets. The AUD broke through 0.7550 during the nationwide session and extended its gains to 0.76 following the RBA’s policy statement. Governor Lowe’s comment suggested the bank was moving towards a stricter monetary policy platform. Controls on the yield curve have not been extended beyond April 2024 and bond purchases will be curtailed, with flexibility for further cuts pending a review in November. The Bank also advanced its forecast for interest rate hikes, suggesting that there were upside scenarios that could see a rate adjustment in 2023. Focusing on the CPI rather than wages There is a feeling that a rise in supply prices could accelerate these further, with a possible rate hike as early as next year. After hitting intraday highs at 0.7601, the AUD then fell sharply overnight as a definite no-risk mood enveloped the markets. US investors apparently came back from their long weekend in a cautious mood, causing stocks and commodity currencies to sell off. There does not appear to be a single catalyst triggering the change in risk, but rather a combination of factors. Fears that the aggressive stock appreciation might be overstated, sluggish US domestic data, uncertainty in oil markets and the relentless spread of the Delta variant appear to have contributed to a decline in risk appetite. The AUD fell 0.75 cents US, touching 0.7480 before rising slightly towards this morning’s open.
The markets adopted a cautious tone overnight, causing risk demand to depreciate and spur gains for both the USD and the JPY. Taking advantage of their safe haven status, the USD and Yen rose against their major counterparts, while the GBP and EUR failed to keep pace. EUR fell below major supports at 1.1825, hitting intraday lows at 1.1810 while GBP slipped below 1.38 to hit 1.3774. The CAD was the day’s big loser, however, losing nearly a cent and a half as turmoil in the oil markets worsened the sell-off of the commodity currency. With no obvious catalyst triggering the decline in risk appetite, our attention remains attached to any signals suggesting a broader shift in the reflation narrative and an ongoing revaluation of risk.
CAD / USD: 0.7450 – 0.7600
EUR / EUR: 0.6290 – 0.6400
GBP / AUD: 1.8220 – 1.8550 550
AUD / NZD: 1.0650 – 1.0730
CAD / CAD: 0.9280 – 0.9420