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AUD crumbles as risk appetite evaporates

Tuesday 11 October, 2022

Daily Currency Update

Last week’s risk off mood continued through trade on Monday, elevating the USD and sending the AUD through key supports toward fresh lows below US$0.63 cents. Equity markets and risk assets bore the brunt of the risk off mood as global rates surged amid renewed fears surrounding UK financial stability and an escalation in the Ukraine/Russia war. The Bank of England announced it would delay its moratorium on gilt purchases and seek to further underpin collateral by way of a repo facility. The announcement should have calmed markets but instead served as a reminder to investors of the UK’s perilous financial predicament. Fears of financial instability coupled with a new wave of Russian missile attacks on key Ukrainian cities forced investors toward haven assets sending the AUD below key supports. The AUD offered little in the way of resistance and was the day’s worst performer crumbling through US$0.6360 and US$0.63 marking intraday lows at US$0.6275. With little of note on today’s macro ticket our attentions remain with the underlying risk narrative ahead of key US CPI inflation and Retail Sales data. In an environment devoid of risk appetite, we anticipate the AUD will remain under pressure with a break toward US$0.60 now in sight.

Key Movers

The US dollar maintained last week’s momentum, extending gains through trade on Monday amid an extension in the current risk off narrative. A complete risk off mood enveloped financial markets as fears UK financial instability and an escalation in the Russia/Ukraine war forced investors toward haven assets. The DXY dollar index punched through 113 as the EUR and GBP fell and the USD/JPY touched 145.70. The euro slipped toward 0.97 while sterling fell back below 1.11 while a break higher in USD/JPY and a move above 146 will no doubt invoke another round of intervention from the Japanese Ministry of Finance. In an environment devoid for risk and the US economy outperforming all other major markets we anticipate dollar strength will extend into the end of the year. While 2023 recession fears remain in play expectations for a tapering in Fed rate hikes have been delayed. Our attentions turn now to key US CPI inflation data and consumer retail sales. Stubborn inflation pressure will all but guarantee another 75 point rate hike when the Fed meets in November and elevate calls for a supersized 100 point rate adjustment. With momentum firmly behind the USD the promise of aggressive fed policy will further compound the current risk off mood and could see the dollar break above the September DXY high at 114.80.

Expected Ranges

  • AUD/USD: 0.6200 - 0.64230 ▼
  • AUD/EUR: 0.6420 - 0.6580 ▼
  • GBP/AUD: 1.7380 - 1.7720 ▲
  • AUD/NZD: 1.1220 - 1.1380 ▼
  • AUD/CAD: 0.8580 - 0.8820 ▼