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AUD underperforms as recession fears elevated

Thursday 23 June, 2022

Daily Currency Update

The Australian dollar underperformed through trade on Wednesday amid heightened risk aversion and a growing fear of global recession. The AUD, coupled with the NZD has been the weakest major unit through the last 24 hours, giving up 0.69 US cents to test intraday lows and key supports at US$0.6880. The week's positive risk sentiment shift faltered Wednesday as recession fears were amplified amid falling consumer confidence and continued inflation pressures. Commodity prices corrected lower on the day with oil down almost 4%, while copper plunged 2.5% and iron ore fell over 1.5%. With UK and Canadian CPI inflation data marking fresh multi-decade highs, investors sought safety in haven assets propping up the USD. Having touched US$0.6880, the AUD found some support overnight following testimony from Fed Chair Jerome Powell, climbing back above US$0.69 and tracking between US$0.6920 and US$0.6940 into this morning’s open. A slew of global PMI data across manufacturing and service sectors is expected to show a contraction across key markets, highlighting concerns the post-pandemic recovery is faltering. Softer than expected data will elevate recession fears and weigh further on the AUD.

Key Movers

Price action across major currencies was mixed on Wednesday as commodity currencies bore the brunt of elevated recession fears while the euro and GBP held up reasonably well despite elevated risk aversion and adverse domestic data sets. The euro, climbed off lows at U$1.0475, eyeing a break above US$1.06, despite reports showing consumer confidence has fallen to its lowest level since the height of the pandemic. Markets instead focused on key comments from Fed Chair Jerome Powell. While Powell offered little in the way of new testimony an acknowledgment a recession was “certainly a possibility” and the suggestion inflation may become entrenched within the economy prompted investors to unwind early USD gains. Fears a US recession will force the Fed off its current path of monetary policy normalisation are weighing increasingly on investors and any sign of sustained and systemic inflation pressures could see recession fears begin to overwhelm inflation concerns. The great British pound opens largely unchanged despite CPI data showing inflation climbed above 9%. The expectation that headline inflation will peak over 11% in Q3 prompted investors to price in a 50 basis point hike at next the next MPC policy meeting in August.

Expected Ranges

  • AUD/USD: 0.6880 - 0.7020 ▼
  • AUD/EUR: 0.6480 - 0.6620 ▼
  • GBP/AUD: 1.7580 - 1.7820 ▲
  • AUD/NZD: 1.0950 - 1.1050 ▲
  • AUD/CAD: 0.8920 - 0.9020 ▼