AUD collapses as global recession looms large
Daily Currency UpdateThe Australian dollar collapsed through trade on Monday as investors extended Fridays risk off run and rush toward safe haven assets. A plunge in global equities, wider global rates and a downturn in key commodities conspired to send the AUD below 0.70 US cents as markets continue to reprice central bank policy expectations. The turmoil following last weeks hawkish ECB policy update and shockingly high US CPI inflation print continues to send shockwaves through the market as hopes inflation pressures would begin to ease were dashed. Analysts have scrambled to adjust policy expectations pricing in an exceptionally aggressive Fed path to policy normalisation. Markets are now pricing a 260-basis point adjustment in US interest rates through the last 5 meetings of the year. With a 50-point hike markets minimum expectation a supersized 75 basis point jump is now being priced for the June, July or September policy meeting. The repricing in global central bank policy expectations and realization global stagflation looms large has forced investors away from commodity led assets driving the AUD toward intraday lows at 0.6930. Having enjoyed a brief foray above 0.72 US cents the AUD has again fallen victim to the broader risk narrative as investors seek safety in the USD, JPY and CHF. With little of note on today’s ticket we continue to absorb the fallout across rates markets and watch supports at 0.6930 and 0.69. A break below these handles could signal a run on April lows at 0.6880.
Key MoversTraditional Safe Haven currencies carried the day Monday as investors continue the flight away from risk assets amid fears aggressive central bank re-adjustments and sustained inflation pressures will plunge the global economy into recession. The US dollar index extended beyond 1.05 Monday, marking fresh highs, while the Yen enjoyed support against all other majors. The surge in global rates has seen the USD extend recent gains against the Yen, pushing through 135 to mark a 24 year high at 135.19. Bank of Japan Governor finally succumb to pressures and admitted the recent collapse in the Yen was bad for the local economy yet refused to be drawn on adjusting the current policy stance suggesting monetary easing was still necessary. Having acknowledged the recent collapse in the Yen is an issue there is some scope to suggest the Yen may find support but with markets enveloped by this surge in global rates we expect the USD will continue to test new heights.
The GBP fell toward intraday lows at 1.2150 amid fears a new trade war with the EU is looming as Parliament looks to re-write the Brexit trade agreement, in particular rules concerning the Ireland/Northern Ireland Border. With the UK economy already battling generational inflationary pressures and lacklustre growth another trade war could well see the GBP sink below 1.20.
The Euro failed to escape the risk off shift, slipping below 1.05 to mark intraday lows at 1.0430. The threat of another trade stoush with the UK and weaker than anticipated domestic economic data weighed on the single currency through the start of the week. With the ECB now committing to normalise monetary policy we do expect the Euro will find support on moves approaching year to date lows. That said, if the ECB fails to keep pace with the Fed and the policy gap continues to widen a break nearer parity is not off the table.
Our attentions today turn to UK Labour market data and US second tier macro sets.
- AUD/USD: 0.6880 - 0.7070 ▼
- AUD/EUR: 0.6580 - 0.6720 ▼
- GBP/AUD: 1.7380 - 1.7620 ▲
- AUD/NZD: 1.1020 - 1.1120 ▼
- AUD/CAD: 0.8880 - 0.9020 ▲