AUD collapses as global recession a reality
Wednesday 6 July, 2022
Daily Currency UpdateThe Australian Dollar tumbled through trade on Tuesday, marking fresh 2-year lows as fears for a global recession engulf financial markets. The AUD opened above 0.6850 and tacked sideways through much of the local session. Investors largely ignored the RBA’s policy update as policy makers elected to raise rates in line with market expectations and offered little in the way of new forward guidance. The RBA lifted rates by 50 basis points as expected and signaled it was prepared to do what was necessary to ensure inflation returns to target. Having bounced between 0.6850 and 0.69 US cents the AUD fell victim to a swift deterioration in the broader risk narrative overnight. US investors returned from the 4th of July long weekend in a bad mood, exacerbating fears for global recession and sending key commodity prices spiraling lower. Oil plunged 10% while copper prices touched 19-month lows, leading losses across other base metals. The AUD crashed through supports marking intraday lows at 0.6763 before creeping back toward 0.68 leading into this morning’s open. It appears markets have moved beyond near-term central bank policy expectations. Analysts have largely priced in a sustained monetary policy tightening cycle and are instead looking beyond near-term headwinds toward the impacts of a global recession. As the outlook for growth sours, risk appetite continues to deteriorate pushing the AUD into a deeper bearish channel. With little of note on today’s ticket our attentions turn to US services data and the FOMC meeting minutes for direction through trade today.
Key MoversPrice action across majors was vicious Tuesday as US investors returned from the 4th of July long weekend in bad mood, forcing risk assets and commodity prices lower amid rising fears for global recession. Haven flows were key with the Yen and Swiss Franc well supported while the USD index surged near 1.5% marking fresh 20 year highs. USD upside came at the expense of the Euro, GBP and commodity currencies. The Euro collapsed on the heels of a surge in Gas prices. Strikes in Norway’s oil fields as workers protest sustained wage softness amplified concerns Europe’s energy crisis will worsen before it improves and sent gas prices toward a 4-month high. With Russia still throttling gas supplies Europe and the euro remain incredibly vulnerable. Having given up 200 points falling from 1.0450 to 1.0250 the Euro has edged back toward 1.03 leading into this morning open. A sustained energy crunch will continue to weight on European growth expectations, while exacerbating inflationary pressures. The risk of European stagflation is rising by the day.
The Great British Pound offered little in the way of resistance slipping below 1.20as the macroeconomic backdrop deteriorates, and Boris Johnson’s government remains in disarray. The resignation of Chancellor Sunak and Health Secretary Javid suggest Johnson’s days in downing street are numbered.
Our attentions today remain with the risk narrative as US services PMI and the Fed minutes dominate the macroeconomic ticket.
- AUD/USD: 0.6730 - 0.6900 ▼
- AUD/EUR: 0.6550 - 0.6650 ▲
- GBP/AUD: 1.7480 - 1.7780 ▼
- AUD/NZD: 1.0980 - 1.1080 ▼
- AUD/CAD: 0.8750 - 0.8920 ▲