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AUD tumbles amid risk of backdrop and more Chinese lockdowns

Tuesday 26 April, 2022

Daily Currency Update

The AUD sell off continued over the ANZAC day long weekend, plunging below 0.73 and 0.72 US cents. A definite risk off mood sweep financial markets amid growing fears China’s Covid zero policy will further exacerbate global supply chain issues and prompt further downside for the Chinese Yuan. Optimism China may be moving away from its strict Covid-19 management structure have been dashed in recent days with new lockdowns introduced across Beijing. The weaker growth outlook and lack of yield support have forced investors out of China prompting a 2% correction in the CNH and a correction in the PBOC setting of the CNY reference rate. The AUD long seen as a proxy for Yuan value plunged lower, breaking 0.72 US cent late on Monday, continuing lower overnight amid sustained fears a front-loaded Fed tightening platform may drive further weakness across risk assets. Having touched intraday lows at 0.7140 the AUD opens this morning buying 0.7180 US cents. With little of note on the domestic ticket our attentions turn to tomorrow quarterly CPI inflation print. A strong read may force the RBA to raise rates next month, ahead of the federal election. Our attentions today remain with offshore drivers with further Yuan weakness possibly driving a push below 0.71.

Key Movers

The US dollar found support through trade on Monday amid the backdrop of a risk off environment. Having broken above 100 the DXY dollar index tested 2 year highs pushing toward 102. Front end loading of the Fed’s tightening cycle has helped fuel gains in recent weeks bolstered demand for the USD as the real yield advantage grows. The Euro enjoyed a little bounce on the heels of Macron victory in the French Presidential race yet remains poised to break below 1.07, while the GBP eyed a break below 1.27. Britain’s economy continues to show signs of extreme weakness with consumer confidence falling to record lows in April while manufacturing PMI data in March fell a further 4 points. With inflation continuing to rise Bank of England policy makers walk a fine line in managing the risks higher prices pose and the real income shock a rise in interest rates will cause. A move to raise rates to quickly could hamstring any recovery and tip the economy into recession. Adding to GBP weakness, the introduction of new legislation that will allow UK law makers to renege on the post-Brexit deal for trade in Northern Ireland. Such a move will amplify tensions with Europe, in particular EU lawmakers in Brussels and potential add further roadblocks to the UK economic recovery.

Expected Ranges

  • AUD/USD: 0.7080 - 0.7280 ▼
  • AUD/EUR: 0.6620 - 0.6730 ▼
  • GBP/AUD: 1.7680 - 1.7820 ▲
  • AUD/NZD: 1.0780 - 1.0930 ▼
  • AUD/CAD: 0.9080 - 0.9210 ▲