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Tech led sell-off permeates currency markets and forces AUD sharply lower

AUD - Australian Dollar

The Australian Dollar fell through trade on Tuesday, giving up supports at 0.7260 amid a broader safe haven push. Having drifted sideways for much of the domestic session, bouncing between 0.7280 and 0.7310 the AUD corrected sharply lower overnight as US investors returned from the Labour Day long weekend and resumed last week's equity sell-off. The shift in risk sentiment through the end of last week and start of this week has seen the AUD give up 24-month highs above 0.74 to touch lows at 0.7210.

With little of note on the domestic macroeconomic docket, direction will continue to be governed by broader risk plays. The rout in US equities has seemingly spread to other financial instruments and if the tech led sell off continues, we could see the AUD come under sustained downward pressure in the short term. That said, the correction in equities appears nothing more than a healthy adjustment given the swift and aggressive rally enjoyed over the last month. Despite the correction we expect the AUD will maintain its long-term upward momentum and continue to test higher highs as we move into the fourth quarter.

Key Movers

Safe Haven currencies outperformed through trade on Tuesday as the rout on US and global equities continued through trade on Tuesday. The CHF, JPY and USD enjoyed strong gains as commodity and growth correlated currencies shifted sharply lower. The USD climbed of 28-month lows to post a fresh four-week-high, buoyed by a broader risk off tone and GBP correction. The sell off in US stocks helped fuel demand for the world’s base currency while heightened Brexit concerns forced Sterling back below 1.30. The Great British Pound marked a four-week low Tuesday as fears Britain is looking to undercut trade talks and leave the EU without a trade agreement grew. The latest round of talks began with Britain suggesting it would override parts of the withdrawal Agreement once it leaves the EU. EU officials retaliated warning there would be no trade pact if the Withdrawal Agreement was not upheld. Talks soured and as the self-imposed October deadline looms large it appears increasingly likely the two sides will split without a plan to sustaining the relationship into the future. Touching intraday lows at 1.2975 there is a sense the GBP’s July/August rally is over. Brexit fears are again front and centre and a break without a deal will likely prompt a deeper GBP correction.

Expected Ranges

AUD/USD: 0.7130 - 0.7310 ▼

AUD/EUR: 0.6080 - 0.6210 ▼

GBP/AUD: 1.7820 - 1.8180 ▼

AUD/NZD: 1.0820 - 1.0950 ▲

AUD/CAD: 0.9480 - 0.9620 ▲