Home Daily Commentaries AUD collapses as risk appetite sours ahead of US CPI data

AUD collapses as risk appetite sours ahead of US CPI data

Daily Currency Update

The Australian dollar plunged through trade on Monday, marking new multi-year lows as risk appetite continues to sour. The AUD was the worst performing unit through trade on Monday, giving up 1.7% on Friday’s close and marking session and 2 year lows at 0.6715. There appears no obvious catalyst behind the spike in risk aversion, markets nerves are simply worn, tattered and ragged as sustained inflation pressures and a rising risk of recession weigh on investors ahead of this weeks all important US CPI print. We anticipate annual inflation in the US will have risen to 9% affirming Fed calls for a 2nd consecutive 75 basis point hike. Reports China’s COVID case count is again on the rise did little to rescue risk appetite and when coupled with Europe’s disastrous Energy crunch the likelihood of a global recession remains elevated. The AUD is firmly entrenched within this bearish channel marking a series of lower lows with lower highs enjoyed on intermittent rebounds. Persistent global headwinds and a Federal Reserve bent of normalizing interest rates at pace will continue to weigh on the AUD through the near term. The questions now is how far will the AUD fall?

Key Movers

The US dollar outperformed all major counterparts through trade on Monday, surging on the heels of elevated risk aversion and a correction in the European yield expectations. Market uncertainty reached fever pitch Monday as investors looked to dump risk assets driving the S&P 500 and Euro Stoxx 600 lower and dragging key growth correlated currencies downward. Rising Covid case numbers in China and the emergence of the highly contagious Omicron sub-variant, coupled with concerns Europe’s energy crisis will only worsen weighed on investors. Reports Germany is preparing a contingency plan to accommodate electricity rationing should Russia refuse to re-open the Nordstream gas pipeline after scheduled maintenance later this month drove sharp declines across European assets. The introduction of energy rationing will all but cripple the German economy, ensuring the ECB will remain well behind the Fed in normalizing monetary policy as the risk of stagflation looms large. While the US dollar index jumped almost 1% marking fresh multi decade highs the Euro slumped to session and 20 year lows at 1.0053 and appears set to break below parity. The question now, how far will the single currency fall?

In other news the Japanese Yen marked a 24 year low following the weekend election result. The LDP’s ability to increase their majority in the House is seen as tacit support for the Bank of Japan’s ultra-accommodative monetary policy program, ensuring the gap between Fed and Bank of Japan monetary policy platforms continues to widen. The USD surged to highs above 1.3750 touching 1.3775.

With little headline data due through trade on Tuesday our focus remains with US CPI data Wednesday as the key marker for direction through the latter half of the week.

Expected Ranges

  • AUD/USD: 0.6680 - 0.6830 ▼
  • AUD/EUR: 0.6630 - 0.6730 ▼
  • GBP/AUD: 1.7550 - 1.7780 ▲
  • AUD/NZD: 1.0980 - 1.1080 ▼
  • AUD/CAD: 0.8730 - 0.8880 ▼