AUD struggles continue as risk aversion mounts and USD surges
Wednesday 27 April, 2022
Daily Currency UpdateThe Australian dollar faced sustained downward pressure through trade on Tuesday, unable to hold onto a brief push back above 0.72 US cents amid mounting risk aversion and a stronger US dollar. Concerns surrounding the global growth outlook coupled with fears that sustained supply pressures will continue to drive inflation higher forced investors toward haven assets. Rising COVID-19 case numbers in Beijing have sparked fears China’s capital will soon be thrust into strict lockdowns mirroring those in Shanghai, exacerbating supply constraints and Chinese economic growth prospects. Investors continue to pare bets for China’s recovery driving key commodity prices lower despite commitments from Chinese officials around future infrastructure investments. Having touched intraday highs at 0.7230 the AUD fell steadily through the early hours of the European session compounding losses overnight and touching intraday lows at 0.7120.
Our attentions today turn to quarter one CPI data. Today’s print is expected to show a significant uptick in consumer prices and the cost of living for all Australians with prices across key non-discretionary items such as groceries and petrol rising rapidly through the last 3 months. Inclement weather and global supply chain issues have prompted a rapid rise in the cost of goods with markets estimating headline CPI to print above 4% while core CPI, a read that removes items highly sensitive to price fluctuations, is tipped to extend beyond the upper bounds of the RBA’s target range at 2-3%. With inflation pressures expected to grow through Q2 a high read today could prompt investors to bring forward expectations for an RBA rate hike from June to May.
Key MoversThe USD continues its upward surge, buoyed by a sustained risk-off shift and expectations the Fed is committed to an aggressive path of monetary policy tightening. The dollar index pushed above 102 for the first time since March 2020 up 0.6% on the day and closing in on a five-year high. The euro fell a further 0.6% eyeing a break below 1.07 as gas prices spiked on reports that Russia will immediately cut gas supply to Poland lest they agree to make payments in Rubles, something Poland has so far refused to do. Poland collects over half of its required gas reserves from Russian pipelines but is not 100% reliant on Russian sourced gas. The fear now is that Russia will employ a similar tactic on other European states more reliant on Russian supply. With energy prices already under pressure, another uptick in gas prices will all but guarantee another surge in inflationary pressures potentially tipping the euro area into recession as the rising cost of living expenses drain consumer confidence. The GBP offered little resistance to the USD upside falling another 1%.
Our attentions today are affixed to Australian CPI data while global risk sentiment will steer direction across the board.
- AUD/USD: 0.7080 - 0.7250 ▼
- AUD/EUR: 0.6650 - 0.6750 ▼
- GBP/AUD: 1.7580 - 1.7750 ▼
- AUD/NZD: 1.0820 - 1.0920 ▲
- AUD/CAD: 0.9080 - 0.9200 ▲