AUD Spirals Lower as Risk Sentiment Sours
AUD
With not much in the way of local data rearing its head on Friday, investors stayed focused on the risk impact of Omicron variant which had a detrimental influence on trade and risk assets like the AUD. The AUD is down heavily across the board, setting fresh lows and significantly below the 0.70 cent mark against USD (see below). Despite the sour risk sentiment, Asian equities closed up higher on Friday, the ASX closing 0.2% higher led by gains in the energy sector, the Nikkei also performing strongly, trading up 1%, and the Shanghai Comp up 0.9%. Commodities were mixed, with Natural Gas taking a big hit, losing out -5.4%, and Copper down 0.6%. Gold closed out 0.9% higher, Silver closing out 0.7% higher, and Iron Ore rallied with gains of 2.4%. Looking ahead, AUD is being driven hard by a reduction of confidence given the evolving Omicron situation, but data wise, tomorrow’s RBA meeting has the potential to have a strong effect on local markets, whilst the data due out from China this week may also have some impact.
USD
AUD relinquished a big figure over the weekend, opening this morning at fresh 13-month lows of 0.6998. The move was largely driven by risk off sentiment as well as comments from the Fed's Bullard who reiterated that a faster finish to the QE program may be come necessary, or even a rate hike before the finalisation of QE could be on the table. US equities fared poorly in the risk off mood, with the NASDAQ falling 1.9%, the S&P 500 losing out 0.8%, and the Dow Jones down 0.2%. Oil stayed firm, however the volatile trading conditions continued whilst U.S. 10 year yields dipped 9bps to 1.36%. Friday night's Non-Farm Payroll report showed mixed results, with the Unemployment Rate dropping from 4.6% to 4.2% and the participation rate improving from 61.6% to 61.8%, however the number of jobs added was far less than was hoped for (210k vs expectations of 553k). Currencies paying more attention to the prevailing sentiment rather than the economic data as USD forged ahead across most crosses. Looking ahead and there's no US data due for release tonight, and Friday night's CPI data will provide the highlight. Aussie importers will be crossing fingers that the AUD can regain the 0.70 handle quickly and that this latest shift downward is nearing the end of its run.
EUR
AUD lower here as well, having lost over 1% since Friday morning and opening at 0.6190 this morning. European PMI data for November was released with France being the first. Services PMI was released at 57.6 weaker than estimates of 58.1 with Composite at 56.1, also below forecasts of 56.3. German services was 52.7 compared to expectations of 53.4 with Composite at 52.2 compared to expectations of 52.8. Across the whole EU, services PMI was 55.9 also falling short of forecasts of 56.6 with Composite at 55.4 below estimates of 55.8. At a similar time to the release of data, ECB President Lagarde commented that it was very unlikely that the ECB will raise rates in 2022. Despite the widely weaker data and down beat assessment from Lagarde, AUD was beset with lack of confidence amongst traders and in what was a common theme, gave up ground quickly. Looking ahead in what will be a relatively quiet week of economic data, Tuesday night's Economic Sentiment data is set to be the highlight. Nothing of note tonight.
GBP
AUD opens lower against GBP at 0.5282 this morning, having not lost ground as aggressively here as the other crosses, due to a reduced probability of a BOE rate hike in December following commentary from BOE’s Saunders that that the Omicron variant would be an essential consideration for rates and that there could be particular advantages in waiting to see more evidence. UK Services PMI data from Friday was weaker than expected, similar to that of its European neighbours, however GBP still had the upper hand on a risk-inflicted AUD. Tonight markets will be paying close attention to MPC Member Broadbent to see if the same hesitancy displayed by Saunders over the weekend is a common train of thought amongst BoE members.
NZD
AUD lost ground to little brother here as well, although not to the same extent as above, opening mildly lower at 1.0370 this morning. Looking forward, ANZ commodity data is due out at 11am this morning, and there are other releases interspersed throughout the rest of the week. Recent rate hikes from the RBNZ the deciding factor in the trans-Tasman battle, the RBA have a chance to level the playing field tomorrow, however are widely expected to leave rates unchanged.