We wrote here yesterday morning about the Aussie Dollar that, “the currency is more likely to be driven by events offshore than at home; especially by what happens in the US stock market”. That is pretty much exactly how things have turned out over the past 24 hours as the much-feared “Black Monday” in the equity market failed to materialise. Having finished on Friday evening barely 300 points above its early February low, the Dow Jones Industrial Average on Monday was up more than 500 points after futures markets opened up in Asia and then moved relentlessly higher for the next 18 hours through to late-afternoon in North America. AUD/USD opened at 0.7700, tracking stock markets up to a high around 0.7745. Another $8 on the price of gold also helped support the AUD, as did a modest drop for the VIX index of volatility.
There’s so much going on simultaneously that it is very difficult from one minute to the next to determine what is the key driver of the AUD. There’s a menu of influences which includes China trade, US tariffs, precious and industrial metals’ prices, the level of global asset markets, the volatility of stock markets and, of course, interest rate differentials and incoming local economic data. At any given moment there are three or four different menu items which can be ticked off, and different weights then ascribed to each of these. Sometimes, it’s hard even to explain a movement which has just happened, let alone to be brave enough to have a firm view on what the next move might be.
Amidst all the noise, perhaps the most important level to watch is the 200-day moving average on the S+P 500 index. It was this point from which the market rebounded in early February and it did the same again yesterday morning; dragging AUD/USD higher in its wake. As we write this commentary, Facebook is down another 3%, though the negative impact on the so-called FANG stocks is mitigated by a near-3% gain for Amazon. The only local economic data scheduled for release on Tuesday is the weekly consumer confidence index; hardly a market-mover at the best of times and likely to be completely overshadowed today by whichever one of the menu items noted above gets the biggest tick. The Aussie Dollar opens in Asia this morning at USD0.7735, with AUD/NZD at 1.0595 and GBP/AUD1.8400.