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AUD tumbles amid rising risk aversion and fresh USD highs

Friday 13 May, 2022

Daily Currency Update

The Australian dollar fell to new year-to-date lows through trade on Thursday as markets maintained a firm risk off mood. Fears the global economy is poised to tip into recession, as the sustained conflict in Ukraine heaps pressure on Europe’s energy crisis, China’s Covid-zero policy hampers supply chain productivity and central banks begin aggressively hiking interest rates, all weigh on investors, prompting an evaporation of positive sentiment. The AUD plunged below supports at 0.6915/20 to mark fresh intraday lows at 0.6830. Having pushed back above 0.70 US cents through trade on Wednesday the AUD plunged on the heels of a sell off across key commodities and risk assets. Equity markets plunged, while copper, iron and other key metal exports all tested new lows. Often seen as a barometer for global growth, copper prices plunged nearly 3% while iron ore futures were down over 4%. Fresh fears Beijing will soon be plunged into lockdown sparked concern supply chain disruptions will only worsen in the months ahead. Despite assurance from Chinese officials they will provide the necessary fiscal stimulus to revive the economy, the CNY came under renewed pressure as the USD moved toward a 20 month high, dragging the AUD down with it. With little of note on today’s macroeconomic ticket our attentions turn to critical wage data next week as a key marker guiding RBA policy through H2. That said, risk sentiment continues to govern direction and we expect the AUD will remain vulnerable to further downward pressure through the near term.

Key Movers

Haven currencies carried the day on Thursday, appreciating sharply as investors move out of risk assets amid an uptick in risk aversion. The DXY dollar index marked new 20-year highs, while the JPY advanced across the board forcing the USD back below 128.50 and enjoying extended gains against key major crosses, namely the AUD and NZD. The euro plunged over 1% in the face of a risk off move and growing fears the continent is poised to tip into recession. Europe’s gas futures lurched higher up 23% at one point, before giving up 50% of gains to settle 12% higher on the day. Reports Russia has imposed sanctions on European Energy companies raises new fears Russia will seek to further restrict energy supplies in retaliation to western support for Ukraine. Having broken below 1.05 the euro tumbled to its lowest level in nearly 20 years, touching intraday lows fractionally above 1.0350. The question now, will we see a move to parity?

Expected Ranges

  • AUD/USD: 0.6780 - 0.7050 ▼
  • AUD/EUR: 0.6550 - 0.6730 ▲
  • GBP/AUD: 1.7620 - 1.7980 ▲
  • AUD/NZD: 1.0980 - 1.1080 ▼
  • AUD/CAD: 0.8890 - 0.9020 ▼