AUD crashes through supports as markets face a wall of worry
Thursday 25 May, 2023
Daily Currency UpdateThe Australian dollar crashed through supports overnight as risk appetite weakened amid a number of nagging concerns. Short-end yields shot upward after UK CPI printed much higher than anticipated, while progress on US debt ceiling negotiations appears to have stalled and fears China’s post covid growth will be weaker than anticipated are amplified. With global equities and risk assets slumping the AUD broke below US$0.6580, tumbling to mark fresh intraday day and 2023 lows at US$0.6530. With the risk-off move hitting commodity-led assets harder the AUD is also down against a series of key crosses. Having fought back above 0.6150 against the euro the AUD now trades back below 0.61 and has slumped below 0.53 against the pound. While sliding below 0.89 against the CAD and giving up ground against the embattled yen the AUD is stronger against the NZD, lurching above 1.07 following a dovish RBNZ policy update.
With little of note on today’s macro ticket, our attentions remain on broader risk drivers. A rebound in appetite should see the AUD climb back toward familiar territory between US$0.66 and US$0.68 while an extension in this risk-off push could see the AUD test new lows.
Key MoversThe USD is broadly stronger today, buoyed by the risk-off mood that has enveloped markets this week. Elevated uncertainty surrounding US debt ceiling negotiations, China growth headwinds and persistent UK inflation pressures forced investors to move risk assets, driving equity indices lower and the USD higher. The DXY index jumped 0.3% on the day while the euro managed to stave off wholesale losses and the GBP slipped below 1.24. Having jumped upward in the moments following the upward surprise in CPI data the GBP drifted lower as markets took stock and absorbed the implication of this latest inflation shock. Headline inflation only fell to 8.7% while core inflation jumped to 6.8% n a month where wholesale downward corrections were expected. Inflation remains much stickier than anticipated and it is likely the Bank of England will be forced to continue raising rates. With domestic economic growth already waning tighter monetary policy can only be bad for the future macroeconomic outlook.
With only second-tier data on hand today our focus will remain squarely affixed to US debt ceiling negotiations. The political impasse will likely continue through the rest of the week as both sides remain divided. While the market remains optimistic a deal will be struck it is more likely a last-minute extension will be agreed, kicking the can down the road a few months.
- AUD/USD: 0.6480 - 0.6660 ▼
- AUD/EUR: 0.6050 - 0.6150 ▼
- GBP/AUD: 1.8680 - 1.9020 ▲
- AUD/NZD: 1.0570 - 1.0780 ▲
- AUD/CAD: 0.8850 - 0.8930 ▲