Aussie climbs despite rising geo-political tension and risk off mood
Tuesday 2 August, 2022
Daily Currency UpdateDespite a broadly risk off environment the Australian Dollar outperformed through trade on Monday, punching back above 0.70 US cents. Treasury yields rallied, key equity indices closed lower and commodity markets fell amid reports US house Speaker Nancy Pelosi is preparing a visit to Taiwan this week. China has warned against the visit suggesting “it won’t sit idly by”. Fears rising geo-political tensions will ignite conflict in the region dampened demand for the Yuan and oil prices yet had little spill over or impact on the AUD, at least for now. Having tracked sideways through the domestic session the AUD climbed through resistance at 0.6980 to mark intraday highs just shy of 0.7050. US ISM manufacturing data spurred a run on the USD and sparked AUD upside as the latest print showed activity had fallen to its lowest level in two years. New orders contracted, and inventories expanded suggesting imminent economic recession is a reality. While the AUD remains incredibly vulnerable to fluctuations in the broader risk narrative last nights move highlights just how much stock markets are placing in US data sets and rising recession fears in shaping direction. Our attentions turn now to the RBA policy announcement. We expect Governor Lowe and the board will announce a 50-basis point rate hike, while signaling ongoing rate adjustments into the end of the year. Outside of larger than anticipated rate adjustment and/or a shift in policy makers forward guidance we expect the impact on the AUD will be minimal.
Key MoversThe US dollar underperformed through trade on Monday, relinquishing ground to most counterparts following a weaker than anticipated ISM Manufacturing Index print. The read showed activity has fallen to its lowest level in 2 years, while key indicators within the report suggest economic recession is imminent. New Orders have contracted for a 2nd consecutive month while inventories continue to expand. The gap between new orders and inventories is keenly monitored and provides a good marker for recession. The dollar index fell as the EUR, JPY and GBP enjoyed modest gains. The JPY forced the USD back below 132 as market unwind recent USD appreciation amid a correction in global rates. Only the CAD failed to enjoy an upturn, closing lower on the heels of a 5% fall in oil prices.
With the market keenly attuned to any signal the USD is headed for recession out attentions turn to commentary from Fed Member Evans and new Job openings in shaping direction through the day ahead.
- AUD/USD: 0.6930 - 0.7090 ▲
- AUD/EUR: 0.6780 - 0.6920 ▲
- GBP/AUD: 1.7280 - 1.7520 ▼
- AUD/NZD: 1.1050 - 1.1130 ▼
- AUD/CAD: 0.8930 - 0.9080 ▲