Civil Unrest Adds to AUD's Woes

AUD

The AUD was trading sideways if not slightly lower against most major currency pairs over the weekend. The increase in risk-off market sentiment is the key driver of the languishing AUD. The last few weeks has seen a decoupling between the relationship between the Aussie Dollar and US Equities, which for a long time had been moving hand-in-hand. So even though US equities traded strongly into the weekend (S&P was at all time highs), AUD did not benefit from the results as it may have only a month ago. Iron Ore has fallen from the recent highs and there is room for further downside with China’s steel production reportedly on the decline, Iron Ore down -2.1%. Domestic dataflow has been overtaken by local risk events with focus remaining on the Covid-front, as Greater Sydney enters its 5th week of lockdowns and a boiling point has been reached for some as anti-lockdown protests occurred around the country on Saturday. It’s a quiet week of data domestically, with attention turning to CPI q/q data on Wednesday.

USD

The AUDUSD was trading relatively flat over the weekend, sitting at 0.7366 this morning. Despite the pullback in US Treasury yields and Fed rate hike expectations, the Greenback has seemingly benefited from delta variant concerns elsewhere around the world. The Big Dollar has been creeping higher throughout July, the DXY hovering around 3-month highs to sit at 92.88. There was some mixed PMI data from the US on Friday, with the Markit Manufacturing PMI improving to 63.1 from 62.1 in June, showing that the economic activity in the manufacturing sector continued to expand at a record-setting pace in July. On a negative note, the Markit Services PMI declined to 59.8 and missed the market expectation of 64.8. Later this week will be key for currency markets as the Federal Reserve will have to deal with the reality of above-trend growth and higher than first expected inflationary pressures at the FOMC meetings on Thursday morning

EUR

The AUDEUR was also trading within tight ranges, sitting at 0.6255 this morning. European Equity markets were also closing higher with the FTSE gaining just under 1.0% with other indices a little above 1.0% on the day. Eurozone following that up with some strong PMI data, Manufacturing PMI of 62.6 beating expectations of 62.5, and Services PMI printing 60.4 above forecasts of 59.3. European powerhouse Germany followed suit with similar strong readings, Manufacturing PMI was 65.6 up from forecasts of 65.1 while Services PMI beat expectations of 59.5 coming in at 62.2 which was a record high. This evening we’ll have German ifo Business Climate, alongside a variety of Euro data this week.

GBP

The AUDGBP sitting marginally lower to trade at 0.5350 this morning. British Retail data on Friday afternoon saw retail sales grow 0.5% in the month of June, above expectations of 0.4% and a big improvement from May’s unexpected 1.4% drop. The yearly figure is also 0.1% above expectations coming in at 9.7% but core retail sales missed expectations according to analyst estimates. Alongside the retail data, UK PMI data had a poor showing with Manufacturing PMI of 60.4 falling short of expectations at 62.5. Additionally, UK Services PMI also missed forecasts of 62.0 by printing 57.8. UK private sector growth fell to a 4-month low as shortages of staff and materials hampered July’s economic recovery. With another empty weekly economic calendar ahead for the UK, you could expect the pair to remain sensitive to overall market sentiment and the US FOMC Meetings on Thursday.

NZD

The AUDNZD also sitting just below levels seen through the end of last week, trading at 1.0553 this morning. The Kiwi has remained buoyant despite the New Zealand government suspending the travel bubble with Australia, saying the threat from ongoing Delta COVID-19 outbreaks is now too great. Markets are now expecting the RBNZ to raise interest rates before the end of this year, some even saying as soon as next month's meeting. This should keep the NZD strong relative to our local unit for the mid term, especially with the ongoing lockdowns in Sydney which will no doubt have adverse economic impacts in coming months.