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AUD tumbles through 0.70 as pessimism grows

Tuesday 10 May, 2022

Daily Currency Update

The Australian dollar fell through 0.70 US cents through trade on Monday amid rising concern for global growth and a broader correction across key commodity prices. Despite an absence of any headline newsflow another wave of risk aversion crippled equity markets and forced investors to reprice industrial commodities. A broad global monetary policy tightening, the war in Ukraine and ongoing lockdowns in China have heightened pessimism around global growth expectations. As bear markets form across key equity indices, commodity prices have tumbled with Oil leading losses while copper fell 1.9% to mark a new 6 month low and aluminum and nickel also suffered heavy losses. The correction in prices highlights how quickly market sentiment has turned. Supply and inventory levels remain under stress across a number of key commodity markets yet the global uncertainty and an expectation for a downward correction in the growth outlook have forced commodities to give up gains enjoyed through Q1. Having slipped below 0.70 US cents the AUD faced added pressure from a falling CNY. The Yuan sell off continued Monday as the USD advanced 1% pushing above 6.70 to touch its highest level since March 2020. Despite PBOC authorities attempting to arrest the pace of decline by setting a higher daily fixing rate markets pessimism surrounding China’s growth outlook and extended lockdown continue to weigh on the unit and the AUD as a proxy. Sentiment and the global growth outlook remain key in driving direction. The break below psychological supports at 0.70 opens the door for a deeper correction back toward 0.69 and 0.68 US cents.

Key Movers

The US dollar enjoyed sustained support against most majors through trade on Monday, propelling the dollar index to fresh heights. Fed rhetoric shows little sign of softening and markets continue to price in an aggressive monetary policy tightening. US 2 and 10 year treasury’s continue to rise while real yields push higher closing in on levels not seen since the middle of 2019. With risk aversion mounting and global yields clearly favouring the world’s base currency there is scope to suggest the USD could extend its current run. Across other major units the Yen and Euro were relatively steady despite the USD upturn. The Euro traded at or near 1.0550 for much of the day while the Yen quickly quelled attempts to push the USD above 131.50. On the other hand the Great British Pound continues to plumb new lows as investors reprice expectations for Bank Of England Monetary policy, amid growing concern for the domestic economy. Growth remains stagnant while inflation pressures grow, led by energy prices and a rising cost of imports thanks to the lower GBP and ongoing trade disputes with EU officials surrounding the Northern Ireland/EU border. A grim and pessimistic domestic economic outlook coupled with sustained near term headwinds could see Sterling give up further ground to key counterparts through the weeks and months ahead. Our attentions turn today to commentary from key Fed officials and the broader risk narrative.

Expected Ranges

  • AUD/USD: 0.6890 - 0.7080 ▼
  • AUD/EUR: 0.6520 - 0.6680 ▼
  • GBP/AUD: 1.7380 - 1.7880 ▲
  • AUD/NZD: 1.0950 - 1.1050 ▼
  • AUD/CAD: 0.8980 - 0.9130 ▲