AUD - Australian Dollar
The Australian dollar edged higher through trade on Friday, benefiting from a broad-based US dollar sell off. Despite an evaporation in demand for risk the AUD extended moves beyond 0.66 testing 0.6650 as markets looked to dump the world’s base currency ahead of an anticipated correction in benchmark monetary policy. US spreads continued to fall, dropping against all major counterparts (outside the CAD) as investors price in a series of interest rate cuts in the months ahead as the Fed attempts to prop up the domestic economy.
With little of note on the domestic macroeconomic docket, direction will again be driven by wider risk flows and the ever-evolving coronavirus epidemic. Volatility across currency markets has been largely subdued to this point, when compared with other financial instruments and we expect this to shift through the days and weeks ahead. EUR/USD volatility spiked on Friday and we are beginning to see larger intraday corrections as markets rush to adjust expectations. While the USD remains under pressure, fear and risk appetite should continue to cap AUD upside with resistance on moves approaching 0.6650 and 0.67 still in play.
Global appetite for risk plunged on Friday as fears the global economy will spiral into recession grow by the day. The spreading coronavirus is driving an urgent flight to haven assets as volatility across financial markets reached levels not seen since the GFC in 2008. With bond yields tumbling, Gold rallied and the JPY and CHF jumped higher while the US dollar fell against most major counterparts. The number of cases reported in the US rose steadily throughout last week prompting markets to price in further Federal Reserve rate cuts. Markets largely ignored a robust labour market print, instead zeroing in on the fiscal response to the coronavirus thus far. Economic advisor Kudlow has promised a “timely and measured” platform of support, a message that disappointed markets chasing more affirmative action. The USD fell through 105 JPY while the Euro drove through 1.13. Volatility in EUR/USD touched 15-month highs having risen sharply through the last 3 weeks, bolstering Euro demand as investors unwind a string of short positions entered through the first 2 months of the year.
The Canadian dollar was the day’s worst performer among majors, tumbling as oil prices bottomed out. Oil dropped 9% to three year lows as talks between OPEC and non-OPEC oil producers broke down before an agreement to cut production could be found.
Attentions remain squarely affixed to developments surrounding the coronavirus as fear and appetite for risk drive direction.
0.6530 - 0.6670 ▲AUD/EUR:
0.5780 - 0.5900 ▼GBP/AUD:
1.9390 - 1.9920 ▲AUD/NZD:
1.0380 - 1.0520 ▼AUD/CAD:
0.8850 - 0.9020 ▲