Risk Mood Sours as Global Equities Under the Pump
AUD
The AUD is widely down against most major currency pairs barring the Kiwi Dollar, largely attributed to risk-off sentiment weighing in on markets. Most equity markets including Asian indices were all in the red at Friday close, with the Nikkei and CSI 300 both losing -0.9%, whilst the ASX was down -2.3%, pushing it to its biggest weekly loss since 2020. The risk aversion was hurting commodity currencies, even with commodities remaining on either side of flat, Gold losing -0.3% whilst Iron Ore was up +0.1%. In early morning data, Australia’s private sector shrank for the first time in four months, according to Flash PMI data, affected by the latest surge in COVID-19 infections. The Manufacturing PMI was down to 55.3 from 57.7 prior, Services PMI down from 55.1 to 45. Looking ahead and there’ll be no more data locally today, however tomorrow will feature the main event for the week, CPI data which could fuel speculation of an interest rate hike if inflation figures are in-line with a forecasted 1% increase in the quarterly read.
USD
The AUDUSD lost the 0.72 position again as it trades at 0.7176 this morning, with the Greenback attracting safe haven flows as it was not just the Aussie dollar off the beat. Wall St was also heavy into the close with each of the major indices suffering the largest weekly percentage drop since the start of the pandemic. The Dow Jones lost -1.3% on the day while the S&P 500 closed down -1.9% and the Nasdaq closed -2.7% lower. In later data from the week before, the US Leading Index for December rose 0.8% as expected, with no reaction from markets. What will be the feature event of the week will be FOMC action on Wednesday, with markets anticipating a rate-hike in coming months. Preluding that, the US will release their Flash Manufacturing and Services PMI data for January today.
EUR
The AUDEUR similarly losing out to trade at 0.6323 this morning. European equity markets couldn’t escape the gloom, remaining soft into the close with the DAX the biggest loser on the day as it shed close to -2%, the CAC not far behind losing -1.7%. ECB President spoke at a virtual panel of the World Economic Forum on Friday and said that there’s “no question in my mind” that the ECB will act once its inflation criteria are satisfied, though the ECB currently sees price growth coming in below its 2% target in 2023 and 2024. The ECB is facing increasing pressure to take action after inflation hit a record 5% last month. In the Euro-area, Flash PMIs for January are also due today and are likely to stabilise around current levels overall.
GBP
The AUDGBP continues the downward spiral for the Aussie dollar, trading to 0.5293, even with some poorer data out of the UK. The FTSE was following suit, with 1.2% losses capping off a horror end to the week for equity markets. The British Pound would have typically been under pressure following a dismal set of retail sales for December. Retail activity was seen falling by -3.7% over the month, well below the -0.6% reading forecast, marking a stark drop from the prior month’s 1% gain. Despite this, the AUD was still weaker which really highlighted the poor mood in markets.
NZD
The AUDNZD was the only currency pair that managed to remain at a comfortable level, with ranges that are trading at the highest level since mid-July, now trading at 1.0689. Lending some support to the Kiwi was Prime Minster Jacinta Ardern rejecting some lockdown fears, despite surging cases in Auckland posing a serious threat as New Zealand witness Omicron spread. Moving on, New Zealand has very few important data to release ahead of Thursday’s NZ Q4 CPI, which is expected to come in at +5.6%.