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AUD holds up despite risk off mood enveloping markets

Wednesday 25 May, 2022

Daily Currency Update

The Australian dollar recovery stalled through trade on Tuesday as the week's early risk-on move gave way to a reversal in risk sentiment. Fears surrounding the global growth outlook overwhelmed investors prompting a 2.5% decline across key equity indices and a depreciation in global rates. Currency markets mirrored the risk-off move and the AUD slipped toward intraday lows at US$0.7060 before a slew of softer than anticipated US macro data sets help lift the currency into the daily close. US services PMI fell while US new home sales plunged 16.6%. The sharp decline in mortgage applications and housing starts has elevated concerns surrounding the US growth outlook. While a series of 50-basis point Fed rate hikes in June and July are already priced in, expectations moving through the second half of the year are no longer as clear cut. Rising uncertainty surrounding the path of US rate hikes and growth has helped add support to the AUD above US$0.70. Having tested a break above US$0.71 overnight the AUD opens this morning buying US$0.7108. Our attentions turn now to the RBNZ’s policy update ahead of US durable goods orders and Fed FOMC meeting minutes. With US growth expectations dominating direction any signal activity is slowing could afford the AUD an opportunity to consolidate a break toward US $0.72.

Key Movers

Price action across major currencies was mixed through trade on Tuesday as a risk-off shift coupled with declines across key major data sets drove direction. The euro surged toward intraday highs just shy of US$1.0750 following commentary from key ECB policymakers. Just 24 hours after ECB president Lagarde hinted at two 25 basis point hikes through the second half of the year, Austrian Governor Holzmann and Governor Kazaks hinted the bank would not rule out 50 basis point hikes. The shift in tone from the ECB when paired with uncertainty surrounding the path of Fed rate hikes beyond July has tipped the hawkish bias in favour of the euro. Having looked like it might test parity a fortnight ago the euro has enjoyed a remarkable reversal in fortunes and with the market now focusing on the ECB’s hawkish shift there is scope for further upside through the near term. The British pound tumbled, falling below US$1.25 after a shocking PMI print. Services fell 7 points and highlights just how close the UK economy is to tipping into recession. Having touched intraday lows at US$1.2472 the GBP recovered some of the lost ground on the heels of a weaker USD opening this morning at US$1.2533. The US dollar remains under pressure as weaker services PMI and housing data highlighted concerns surrounding the US growth outlook and casts a pall over expectations for Fed policy beyond August. After a series of false starts, it appears a broader USD correction is forming. Our attentions remain closely aligned with global risks and we remain cautious in extending positions in the face of significant global headwinds.

Expected Ranges

  • AUD/USD: 0.7020 - 0.7150 ▼
  • AUD/EUR: 0.6550 - 0.6680 ▼
  • GBP/AUD: 1.7580 - 1.7820 ▼
  • AUD/NZD: 1.0950 - 1.1050 ▲
  • AUD/CAD: 0.9040 - 0.9180 ▲