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Volatility abounds; AUD test 0.76 before a steep overnight sell off

Wednesday 7 July, 2021

Daily Currency Update

AUD - Australian DollarThe Australian dollar opens back below 0.75 US cents this morning after a tumultuous 24 hours across financial markets. The AUD edged through 0.7550 through the domestic session and extended gains toward 0.76 in the wake of the RBA policy statement. Commentary from Governor Lowe suggested the bank was moving toward a tighter monetary policy platform. Yield curve controls were not extended beyond April 2024 and bond purchases will be reduced, with flexibility for further reductions pending review in November. The Bank also bought forward its guidance on interest rate hikes, suggesting there were upside scenarios that could see a rate adjustment in 2023. With focus on CPI instead of wages, there is a sense that a supply lead uptick in prices could accelerate this outlook even further, with a rate hike possible as early as next year. Having touched intraday day highs at 0.7601 the AUD then fell steeply overnight as a definitive risk-off mood enveloped markets. US investors seemingly returned from their long weekend in a cautious mood, driving a sell off across equities and commodity currencies. There does not appear to be any one catalyst triggering the risk-off shift, rather a combination of factors. Fears the aggressive appreciation across equities is overdone, soft US domestic data, uncertainty across oil markets and the relentless spread of the Delta variant all appear to have contributed to a drop in risk appetite. The AUD plunged through 0.75 US cents, touching 0.7480 before edging marginally higher into this morning’s open.

Key Movers

Markets adopted a cautious tone overnight, driving a depreciation in risk demand and prompting gains for both the USD and JPY. Cashing in on their safe-haven status, the USD and Yen advanced against major counterparts, while the GBP and EUR failed to keep pace. The EUR broke below key supports at 1.1825 touching intraday lows at 1.1810 while the GBP slipped below 1.38 to touch 1.3774. The CAD however was the day’s big loser, giving up almost one and a half cents as turmoil across oil markets compounded the commodity currency sell off. With no obvious catalyst triggering the decline in risk appetite, our attentions remain affixed to any signal suggesting a broader shift in the reflation narrative and an ongoing risk reprice.

Expected Ranges

  • AUD/USD: 0.7450 - 0.7600 ▼
  • AUD/EUR: 0.6290 - 0.6400 ▼
  • GBP/AUD: 1.8220 - 1.8550 ▲
  • AUD/NZD: 1.0650 - 1.0730 ▲
  • AUD/CAD: 0.9280 - 0.9420 ▲