Omicron Hammers Risk Assets
AUD
The Aussie dollar opens the week lower across the board as a result of an increase in general risk sentiment over the Omicron variant of the Covid-19, illustrated by a massive jump of over 50% in the VIX (the fear index). With parts of Europe already locking down in reaction to increasing case numbers of hospitalisations, fresh border closures around the world to 8 South African countries where the Omicron variant originated is only further increasing market risk aversion. As a risk currency the Aussie dollar has taken a beating. Other risk assets have fared similarly poorly; Asian Equities sold off with Hang Seng leading the losses falling 2.70%, Shanghai Comp down 0.6%, Nikkei down 2.5% and the ASX fell 1.70%. Commodities were mixed, with safe haven Gold up 0.8%, Silver down 1.9%, Iron Ore up 2.2% with the biggest change being Crude Oil down 13% ahead of next week's OPEC+ meeting on production policy. Friday afternoon saw some positive data in the form of monthly retail sales at 4.9% more than double than forecast 2.2% and triple last month's 1.3%, however this was completely overshadowed by the Covid developments. The week ahead will feature local GDP for Q3 on Wednesday morning, however market movements are likely to be dominated by pandemic-related headlines until the initial shock wears off.
USD
AUDUSD opens comfortably lower this morning at 0.7121 as a result of USD safe-haven buying in reaction to the lastest Covid variant. Tis represents fresh 3-month lows against the Big Dollar. Movements may have been exaggerated consider the thin market conditions as the US was celebrating Thanksgiving holiday. Risk aversion hammered Wall St with all major indices in the red; Dow down 2.5%, S&P 500 down 2.3% and the NASDAQ down 2.2% US yields were also tumbling with both the 2yr and 10yr down as much as 15bps as markets pared back the chances of imminent interest rate hikes. With the US back in action this evening market conditions should return to normal, and the data docket for the week ahead includes Fed Chair Powell speeches as well as the monthly Non-Farm Employment report at week's end.
EUR
Aussie falling sharply against the Euro to 8-week lows, opening the week at 0.6299. Data out of the Eurozone seems slightly better than the ECB would lead us to believe, resulting in a positive bump for the EUR against other majors although sentiment overall still seems somewhat dovish. Friday night we saw the M3 Money Supply y/y data slightly better than expected at 7.7% against last year’s 7.5%, alongside Private Loans y/y data slightly above forecast at 4.1% same as last year’s data release. European stocks could not avoid the carnage, with the DAX down 4.2% and teh CAC down 4.8% as traders looked to rid their portfolios of risk. Tonight we get German Prelim CPI m/m and Spanish Flash CPI y/y data releases and looking further ahead, ECB President Lagarde will be on the wires on a couple of occasions.
GBP
Aussie opens the week against the Pound at 0.5342, also at a 2-month low as AUD suffers against a set of positive UK data releases and overall negative risk sentiment. As the Omicron-related risk asset selloff hit markets, the FTSE lost a solid 3.6% amidst the chaos. The UK is now reintroducing mask wearing in certain conditions and has also closed borders to the 8 South African countries of most concern. With the UK winter now upon us, markets are nervously waiting to see what effect the new variant will have on holiday plans. Coming up today we will see the M4 Money supply m/m, Mortgage approvals and Net Lending to Individuals (total value of credit issued to consumers). There is also BoE speak scattered throughout the week.
NZD
The Aussie starts the week against the New Zealand Dollar at 1.04386 in what was a relatively evenly-fought battle as both currencies felt the pinch of risk aversion. Residual impacts of last week's RBNZ decision to increase rates continues to support the NZD in the markets, yet the new Covid variant puts a hamper on further growth for the NZD as a risk currency. Something to look out for Tuesday this week, we will see some business confidence data being released, and later Wednesday building consent data.