European political turmoil crushes risk sentiment and sends AUD lower
Wednesday 30 May, 2018
Daily Currency UpdateThe Australian dollar fell through trade on Tuesday as risk off sentiment drove investors out of commodity based and emerging market units. Investors sought safety in haven assets as political turmoil in Europe sent jitters through the wider market and forced the AUD to intraday lows at 0.7499, its lowest mark in over a week.
Having followed treasury yields and equities lower the AUD did well to hold onto supports at 0.75. The increased likelihood of fresh Italian elections and the growing support within Spain for the left-wing opposition sent the Euro sharply lower and landed a heavy blow to broader risk sentiments forcing the AUD to shorten against the traditional haven drawcards, the USD, JPY and CHF. While well supported on approaches toward 0.7450 broader risk sentiment will continue to govern direction through the short term.
Today, attentions turn to a largely overcrowded macro-economic calendar. Domestic building approval control the local docket awhile all important Q1 GDP data and preliminary labour market data headline the US calendar and will provide potential catalysts steering direction within the current ranges.
Key MoversThe New Zealand dollar swung lower in overnight trading as a general risk off tone was observed in offshore markets. With geopolitical risks in Europe at present, large movements were seen back into safe haven plays and subsequently the Kiwi was sold off against the US Dollar and Japanese Yen.
Opening at 0.6940 and with no domestic economic data released yesterday we saw the major movements at the opening of the European session falling back to the US 69 cent handle and eventual lows of 0.6890.
With the Euro being the major casualty from political uncertainty in Italy overnight, the NZD/EUR continued its rally higher and eventually topped out at 0.6002.
The RBNZ Financial Stability report was released this morning whereby it was stated that the financial system is “sound and efficient” with no change materially in the past six months.
There was no impact the Kiwi following the release as investors look to RBNZ Governor Orrs speech this afternoon for further influence on movements for the local currency.
The New Zealand Dollar opens this morning at 0.6895.
The Great British Pound is weaker this morning when valued against its US counterpart. The Sterling fell to an overnight low of 1.3205 on dominant risk aversion.
The political unrest in Italy continued overnight being the main focus over last 24 hours with fears the eurozone may be about to plunge into another crisis as the political situation in its third-largest economy, Italy, deteriorates rapidly.
Looking ahead today the UK macroeconomic calendar is light again today with no scheduled releases. From a technical perspective, the GBP/USD pair is currently trading at 1.3258.
We continue to expect support to hold on moves approaching 1.3210 while now any upward push will likely meet resistance around 1.3280.
The Greenback found support on Tuesday following the release of the U.S Conference Board Consumer Confidence Index. The reading improved on April’s 125.6 to 128 in May. The index has remained resilient in recent months despite uncertainty stoked by anti-trade rhetoric and stock market volatility. Consumers assessment of current conditions in May improved, fewer saw business conditions as being ‘bad’ and more saw them being ‘good’ along with there expectations on ‘more jobs’ in the next six months. The U.S Dollar Index which gauges the U.S unit against half a dozen currencies climbed to 94.85, EUR/USD touched a ten-month low amid eurozone political concerns.
Gold prices finished the session lower but continues to maintain an uptrend. The yellow metal initially rose above $1300 on Tuesday as the political crisis in Italy deepens however the U.S Dollar’s strength kept a lid on any further gains. Meanwhile other precious metals such as Silver was down 0.25% an ounce and Platinum remained flat at $900.75 an ounce.
U.S stocks have fallen sharply, the S&P 500 and the Dow registered their biggest one-day percentage drop in months on Tuesday. Mostly shares of the S&P 500 banks were affected with dash to safe havens as geopolitical uncertainty plays on the back of investors minds.
Key things to watch today – U.S ADP nonfarm employment data, Preliminary GDP and the Fed’s Beige Book.
The Euro remained under a lot of pressure on Yesterday’s session, with the EURUSD reaching a new low for the year, around 1.1540. Uncertainties surrounding Italian politics continued, interim PM Cotarelli will struggle to get a vote of confidence, prompting elections for the end of July, although the final date will depend on consensus among parties.
Italian 10yr bond spiked 47 basis points, and the spread between Italian and and German 10yr bonds kept widening.
Next support for the EURUSD should sit around 1.15 whit upside resistance around 1.1650.
The loonie continued suffering from weaker oil prices, with the USDCAD closing around 1.3015 and spiking all the way up to 1.3045 in the intra-day.
It was not only WTI crude putting pressure on the loonie, which lost 1.5% on the day, but also trade concerns following Headlines reporting US will apparently implement $50bn of tariffs on Chinese imports.
USDCAD will probably find resistance on yesterday’s high around 1.3045, while first support on the downside is sitting around 1.2960.
- AUD/NZD: 1.0780 - 1.0980 ▲
- GBP/AUD: 1.7530 - 1.7830 ▼
- AUD/USD: 0.7450 - 0.7630 ▼
- AUD/EUR: 0.6430 - 0.6580 ▲
- AUD/CAD: 0.9650 - 0.9850 ▼