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AUD worst performed among majors as risk off mood extended

Daily Currency Update

The Australian dollar marked fresh lows through trade on Wednesday as risk sentiment continues to sour in the face of rising bond prices and a stronger US dollar. The VIX index, a measure of volatility, has moved steadily higher this week as investors exit equities and risk assets in pursuit of haven assets. Having slipped below US$0.64 earlier this week, the AUD tested a break below US$0.6350 marking intraday lows at US$0.6330 before finding support. Risk sentiment remains downbeat as ongoing concern surrounding China and the global economic outlook combine with rising concern the US government will be forced to shut down come midnight on Saturday. While a stopgap measure to secure funding for a further 4-6 weeks is expected to be passed through the House and Senate on Friday, the uncertainty created by bipartisan politicking is amplifying the risk-off mood. Inflation pressures are lingering, as evidenced by yesterday’s uptick in monthly CPI data, as are fears that interest rates will remain higher for longer are adding further pressure on risk assets and elevating fears of recession.

Attentions turn now to German CPI data tonight with domestic retail sales and US jobless claims providing second-tier macro markers. We expect little change in the risk narrative with the AUD to remain under pressure testing moves toward 0.63.

Key Movers

The US dollar continued its rampant run toward new 2023 highs through trade on Wednesday as risk sentiment continues to sour. The DXY index was up another 0.4%, while the Euro tested a break below 1.05 and the GBP slipped below 1.2150, while the USD continues to push higher against the Yen, closing in on 150. Further signs that the US economy is proving more resilient than the Euro area and the UK, is forcing investors toward the USD. With interest rates expected to remain higher for longer, fears of a deeper and longer global recession add further weight to the recent risk-off mood.

With treasury yields and global bond rates continuing to climb and oil prices rising, adding to future inflation expectations, the USD should continue to garner near-term support. In this current risk-off environment, we expect little shift in the underlying narrative with risk assets and commodity-led currency remaining under pressure.

Attention turns today to the German CPI data and US jobless claims.

Expected Ranges

  • AUD/USD: 0.6300 - 0.6430 ▼
  • AUD/EUR: 0.5980 - 0.6080 ▼
  • GBP/AUD: 1.8880 - 1.9220 ▲
  • AUD/NZD: 1.0680 - 1.0780 ▼
  • AUD/CAD: 0.8520 - 0.8680 ▼