AUD tumbles in wake of Turkish Lira’s collapse
Monday 13 August, 2018
Daily Currency UpdateThe Australian dollar fell through key technical supports on Friday, breaking 12-month lows and crashing through 0.73 US cents. The AUD tumbled lower following the collapse of the Turkish Lira that prompted a broad-based flight to safety. Turkey’s deteriorating macroeconomic position escalated into an all-out currency crisis as the embattled unit plunged as much as 24%. The contagion spread to other emerging market counterparts, hampered the Euro for fears of exposure to Turkish banks and hammered demand for risk forcing a sell off in commodity led currencies and a push for haven plays and the USD.
The break below 0.7330/0.73 is significant. After a period of consolidation, the AUD appeared well bid on moves toward 12-month lows, comfortable amid ranges between 0.7300 and 0.7480, however the latest hit to risk appetite has opened the door to another downward correction and suggest there is still legs in the USD yet. Having touched 0.7270 a break toward 0.7230 and 0.7170 is open as attentions remain squarely focused on global risk appetite and trade tensions for direction into the week ahead.
Key MoversThe New Zealand Dollar had a week to forget last week as it tumbled 2.3% for the week. Opening this morning at 0.6588, the Kiwi finds itself in negative territory as risk-sentiment fled the market. Unsupported at home as well as abroad, the NZD looks to tread water ahead of a quiet week on the domestic calendar.
Fortunes turned sour early last week for the Kiwi with the RBNZ’s Governor John McDermott commenting that any rate rises “were off the table for the foreseeable future”. This had an almost immediate effect on the New Zealand Dollar, which tumbled significantly. The Kiwi also found little joy from the PMI print on Friday, which only added to the gloom over New Zealand’s economic growth. The falls were than exacerbated, albeit marginally considering the previous declines, as Turkey-related turmoil dominated the headlines. The Turkey newsprint pushed risk currencies, including the Aussie and Kiwi, further lower with he AUD/NZD now sitting at 1.1070. Overall, the Kiwi remains the worst performing currency for the week.
The New Zealand Dollar is now set to enjoy a lacklustre domestic calendar with direction being driven off-shore. The headlines also remain in focus with Turkey and China both having materially effect on the currency.
The Pound opened the Asian session on Friday above at 1.2827 against the U.S Dollar however, the cable shed close to 0.8% later in the day and down 1.8% on the week touching 1.2777 – a level not witnessed since June 2017. The fall came on the back of continued turmoil in Turkey with President Trump confirming he was doubling tariffs on Turkish aluminum and steel, the news triggered the Turkish Lira to collapse sending shock waves through the market and ultimately investors flocking back to safe-haven buying.
On the data front, UK GDP came in line with consensus expectations rising 0.4% in the second-quarter. Although the June monthly read was 0.1% against 0.2% expected. Investment and government spending were stronger than expected, while the pace of private consumption lifted, but still missed expectations.
In other news, Industrial production rose by 0.4% in June, after falling 0.2% in May and the trade deficit narrowed to £1861 million in June, from a deficit of £3141 million in May. Exports lifted again in June, while imports eased resulting in a smaller trade deficit.
Looking ahead, we see the release of UK Average Earnings Index, Claimant Count Change and Unemployment rate.
On the technical front, the Pound could still be under pressure this week after the no-deal Brexit news and Turkey still in the limelight. Support sitting at 1.2670 and resistance up at 1.2800
What a day it was for the US Dollar on Friday as markets saw large movements into the Greenback and Japanese Yen following the demise of the Turkish Lira and a major play back into safe haven currencies.
The Lira initial collapse accelerated at the end of the Asian session as concerns for the economy and diplomatic conflict between the United States and Turkey caused the Lira to tank as much as 24% at one point, with Donald Trump doubling tariffs on Turkish Steel and Aluminium.
With a bout of risk aversion in play, Inflation figures were pushed aside as an afterthought as the headline figure rose to 0.2% for the month of July and at an annualised pace of 2.9% as a result of higher housing and food costs. With economic data supporting further interest rates, the Federal Reserve looks to remain on track for a further two interest rate rises by the end of 2018.
In terms of Price action, The US Dollar was one of the best performers of the day, rallying against the majority of G10 currencies with the EUR/USD cross dropping from 1.1530 to 1.1380 on close and the US Dollar Index (DXY) rocketing to 14 months highs.
Further volatility is expected over the coming days, with currencies gapping lower on open this morning as contagion fears spread the markets. Fears of large European banks exposure to Turkey could have a rippling effect to equity and currency markets alike.
On the agenda today is a round of data releases out of China including industrial production figures for the year with United Stated retail sales released on Wednesday evening.
Friday saw the Euro sink to it’s lowest level against the greenback in over a year as investors became concerned about European banks exposure to the plunging Turkish Lira. With the Lira plummeting around 24%, the Euro was sold off after the financial times reported that the ECB had genuine concerns around banks in Spain, Italy and France and their respective exposures to the issues facing Turkey’s economy. Traders are especially concerned with potential domino effects throughout Europe which could see capital flows out of Eurozone banks and into the US, hence the sharp spike in the USD.
The Euro fell below the key technical support at 1.15 to finish down about 1% on the day and 1.35% down against the Japanese yen, the sessions top performer. We open this morning at 1.1395 against the greenback with new downside supports at 1.1385 and 1.1350 with topside resistance at levels closer to 1.1440 and 1.1490 respectively.
Today’s calendar is light for the Euro with traders looking towards German CPI and GDP reads due out early Tuesday morning before Eurozone GDP due out later in the session. The EUR is likely to take its cues this week from any reports out of turkey and risk sentiment more broadly.
The Canadian dollar was pushed beyond recent bounds on Friday tumbling through support at 0.7650 and breaking back below 0.7600. The loonie followed commodity led and emerging market currencies lower as investors rushed back to the USD following the collapse in the Turkish Lira and an all out break in risk appetite.
Having come under increasing pressure last week following a softening in oil prices and Saudi Arabian tensions the CAD remains vulnerable to deeper downside moves and an extension toward 12-month lows at 0.7530/0.7505 as the USD gathers renewed momentum.
Attentions now turn to key US consumer retail sale data Tuesday while CPI data Friday dominates the domestic docket. A strong read could prompt an upturn in expectations for RBC action and help drive short term support however trade and risk appetite continue to govern broader direction into the start of the week.
- AUD/NZD: 1.0930 - 1.1130 ▼
- GBP/AUD: 1.7300 - 1.7580 ▲
- AUD/USD: 0.7230 - 0.7380 ▼
- AUD/EUR: 0.6320 - 0.6420 ▲
- AUD/CAD: 0.9530 - 0.9690 ▼