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Risk-off: AUD forced into swift retreat as sentiment sours

AUD - Australian Dollar

The Australian dollar advance stalled on Wednesday as market demand for risk soured and investors sought haven assets. Having touched intraday and 5-week highs at 0.6450 the AUD suffered a sharp and swift correction, retreating through 0.6350 and 0.63 to touch intraday lows at 0.6283 before edging higher into this morning’s open. Westpac’s consumer confidence report fell to -17.7 in April a 14-point decline on March’s already soft read, while foreign direct investment in China was slashed, printing over 10% lower in March when compared with a year on year averages. The softening data point in China is in stark contrast to Tuesday’s better than anticipated Trade Balance report and perhaps offers a better insight into the bleak reality that fronts the worlds second largest economy.

Despite having enjoyed a sustained upward push through the last 2 weeks the AUD has remained vulnerable to fluctuations in risk sentiment and Wednesday’s correction in risk demand serves to remind investors that extended AUD upside will be hard won. Attentions today turn to domestic labour market and employment data. The unemployment rate is tipped to near 8% by October and today offers the first real insight in to just how much damage has been inflicted on the economy as a direct result of the coronavirus pandemic. Conservative estimates have the unemployment rate jumping to 5.4% despite declines in the participation rate. A soft print could force the AUD back through 0.63/0.6280 and mark a shift in recent sentiment toward the currency.

Key Movers

The US dollar outperformed through trade on Wednesday, advancing against most major counterparts as risk sentiment soured. Equities and treasury yields plunged lower, commodity currencies under-performed, while the EUR, GBP and JPY all suffered modest corrections. Demand for risk shifted Wednesday as key US data points showed just how wide reaching the economic fallout from the coronavirus will be. U.S retail sales suffered their largest monthly drop in March while manufacturing indexes touched record lows, with the NY Empire State manufacturing index falling twice as far as conservative estimates suggested. The poor macroeconomic performance coupled with a bleak report issued by the IMF have forced investors toward safe haven assets and helped break the recent USD downturn.

The Canadian dollar suffered heavy losses as the Bank of Canada announced new plans to increase its QE program. The BoC will begin purchasing investment grade and provincial bonds in a bid to stabilise financial markets and essentially fund fiscal stimulus measures.

Attentions turn again to US unemployment claims as broader risk appetite continues to steer direction.

Expected Ranges

AUD/USD: 0.6030 - 0.6450 ▼

AUD/EUR: 0.5680 - 0.5880 ▼

GBP/AUD: 1.9590 - 2.0030 ▲

AUD/NZD: 1.0430 - 1.0580 ▲

AUD/CAD: 0.8830 - 0.8980 ▼