How Long will Lockdowns Delay RBA Action?
AUD
The AUD lost out against most majors barring GBP and NZD as risk-off sentiment grips currency markets, Covid-19 woes and reports overnight of a Chinese cyber attack the main culprits. The AUD did not like the additional restrictions put in place across Victoria and South Australia as the state Governments look to curb the increasing cases of the Delta variation of the virus. The worsening virus situation is challenging the economic recovery and likely delaying any tapering talks from the RBA as the rest of the world prepares to adjust monetary policy settings to manage expected inflation rises. Risk-off sentiment intensified and was hard felt by US Equity markets as the Dow Jones had the worst daily performance since October, down -2.1%. The S&P 500 and Nasdaq were not spared either as the former slumped -1.6% whereas the latter marked -1.1% losses. Additionally, the market’s gauge of fear, the VIX, jumped 22%, the most since early May, further highlighting the volatility in the market. Today we’ll hear from the RBA’s Monetary Policy Meeting Minutes, but are of lesser interest than usual as we have heard from Governor Lowe twice since recent taper talks.
USD
The AUDUSD pair took a significant run southbound, sitting at 0.7338 this morning which represents almost 8 month lows. The US Government and their allies (including Australia) have accused China of using Microsoft Exchange Servers to conduct cyber-attacks, stating “In consultation with our partners, the US Government has determined that China’s Ministry of State Security exploited vulnerabilities in the Microsoft Exchange software to affect thousands of computers and networks worldwide.” The Australian Government issued statements in-line with the US, and has surely compounded the already fragile diplomatic ties with Beijing. Flight to safety is a big theme amongst market participants given the uncertainty in the market, however US 10-year Treasury yields unusually dropped 10 basis points (bps) to mark the heaviest daily fall in eight months to a concerning 1.197%. This wasn't enough to take the shine off the USD though which was attracting safe-haven bids. It’s a light data calendar out of the US this week with just some flash PMIs of note on Friday.
EUR
The AUDEUR also taking heavy losses to trade at 0.6223 at time of writing. The AUD was weaker against the EUR despite the heavy sell off on European equities as the FTSE, DAX and CAC all in a sea of red, down -2.3%, -2.6% and -2.5% respectively. The focus is now on equities and risk sentiment. The key event of the week will be on Thursday with the European Central Bank meeting. Some analysts predict that the central bank could deliver “a very dovish hold”, with no change in rates expected. It will be the first meeting since the new strategy was announced.
GBP
The AUDGBP managed to stay afloat, trading relatively even to sit at 0.5369 this morning. England's nightclubs reopened Monday as the country lifted most remaining coronavirus restrictions after more than a year of lockdowns. The aptly named ‘Freedom-Day’ was a cause for celebration, but the step out of lockdown has been met with nervousness when confirmed cases are not falling but soaring. Additionally, the US State Department and CDC both issued on Monday their highest warnings against travel to the UK, with the UK's advisory rating being lifter to level 4. Looking ahead, the main focus will be to see how the UK fares as restrictions are removed.
NZD
The AUDNZD was able to par some of the recent losses despite the heavy market to trade at 1.0583 this morning which represents 5 month lows. With primary data releases absent for the rest of the week, and Federal Reserve speakers in blackout ahead of next week’s FOMC meeting, the NZD will be driven primarily by risk appetite. A sleepy week ahead out of the Kiwis.