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AUD gives up 0.73 as risk-off backdrop wins out

AUD - Australian Dollar

The Australian dollar opens lower this morning as volatility across equity markets prompts another run on risk assets. Having maintained a narrow trading band through much of the domestic session, the AUD found support through European trade, running past 0.73 to touch intraday highs at 0.7320, before correcting lower throughout the latter hours of the US session. A risk-off backdrop forced another sell-off across US stocks with Amazon, Apple and Google leading tech losses, while energy stocks plunged amid a drop in oil prices. The S&P500 and NASDAQ both gave up early gains moving 1.4% and 1.8% lower respectively. The sell off permeated currency markets continuing the AUD’s close correlation to equity performance. Having touched intraday lows at 0.7250, the AUD opens marginally higher this morning buying just 0.7259 US cents.

Attentions today remain with equity performance and the broader risk tone. Further depreciation across stocks could see the AUD test the weekly low at 0.7190, while a rebound in sentiment should prompt a recovery back toward 0.73.

Key Movers

The US dollar edged upward through trade on Thursday, shrugging off early losses to close the day 0.2% higher. Having fallen to intraday lows near 92.70, after the ECB elected to maintain its current program of monetary policy prompted a short and sharp risk on run, the USD resumed its correlation with equity markets driving back through 93 as tech and energy stocks forced the S&P 500 and NASDAQ lower.

The euro pushed through 1.19 to touch 1.1920 after policy makers at the ECB elected to maintain the current policy setting while upgrading growth and inflation forecasts. The hawkish undertone and suggestions the bank will do little in the interim to combat the euro’s appreciation helped bolster demand for the single currency before Brexit weakness and a broader risk-off shift prompted markets to give up gains and push the currency back toward 1.1820.

The Great British pound sell-off continued as mounting Brexit fears weigh on the embattled currency. Trade negotiations have stalled heightening fears a “no deal” divorce will eventuate. Sterling moved sharply lower losing almost 2% and touching intraday lows at 1.2780 before creeping higher into Friday’s open. With risk sentiment faltering and Brexit concerns escalating we expect the pound will remain under pressure as we move toward the self imposed October trade deal deadline.

As the likelihood of a no deal Brexit increases, we expect the GBP will continue to give up gains won through July and August.

Expected Ranges

AUD/USD: 0.7190 - 0.7320 ▼

AUD/EUR: 0.6080 - 0.6180 ▼

GBP/AUD: 1.7480 - 1.8020 ▼

AUD/NZD: 1.0850 - 1.0980 ▲

AUD/CAD: 0.9480 - 0.9620 ▲