Unstable Risk Sentiment Leads To AUD Correction

AUD

AUD sellers continued their Friday sell-off into the long weekend after giving back a large portion of the recent rally. Asian Equities were largely down on Friday with Chinese stocks seeing the worst day in 27 months as Covid worries continued to extend, The Shanghai Comp tumbled -5.1% and the Nikkei dipping -1.9%, seeing its worst day in 6 weeks. Australian shares followed suit and fell sharply on Friday, following losses from global equities, the ASX 200 closed -1.6% lower at 7,473 points. No macroeconomic releases among the docket on Monday as Australians honored ANZAC day. AUD traders this week will have some key Australian and US data points to keep an eye on. The AUD traders specifically eyeing off the Q1 Australian CPI (Consumer Price Index) report which could boost expectations for RBA tightening and thus reverse some of the recent weakness in the AUD. Furthermore, market conditions will also depend on the recent outbreak in China which has now spread to some major districts in Beijing, continuing to grow, triggering further lockdowns in the world’s second largest economy, in which the Australian economy is heavily dependent.

USD

The AUDUSD continued to dip on Monday and slumped to its lowest level in two-months, the AUDUSD pair traded as low as 0.7138 before coming back to trade at 0.7183 this morning. A dampening market mood, courtesy of China’s covid outbreak and continuing Federal Reserve monetary tightening weighs heavily on the Australian dollar at the start of the week. US Equities finished the session in the green with the Dow Jones & The S&P 500 0.7%, and 0.5% respectively, while the Nasdaq rallied 1.3%. Oil dipped 2.7% and fell under the $100 a barrel mark while U.S 10-year yields retreated 9bps to 2.81%. Little in the way of any market moving economic releases on Monday. The greenback remains somewhat underpinned by increasing bets that the Fed would hike rates by 50bps as shown by Short Term Interest Rates (STIRs), fully pricing in 0.50% increase. Data-wise this evening the US economic docket will feature some lower tier data with end NHS being the only data of note.

EUR

The AUDEUR pair extended its fall into the 66’s on Monday and trading at two-month lows before coming back to trade at 0.6700 this morning. European Equities tumbled to the lowest in six-weeks as global risk sentiment soured over the concerning Covid outbreak in China. The French Index CAC fell 2.0%, while the DAX in Frankfurt lost 1.54% to a new one-month low. In lower tier releases, The German IFO Survey for April printed at 91.8, up from 90.8 and beating expectations of 89.0 with both Current Assessment and Expectations beating forecasts. Little reaction to this data. Meanwhile, ECB sourced over the weekend highlights a sense of urgency by policymakers to end net QE purchases as soon as possible. It’s a quieter start to the week for the AUDEUR pair with little-to-no macroeconomic releases due until Thursday evening with a flurry of Eurozone tier 1 data due to headline.  

GBP

The AUDGBP pair followed suit among the majors, continuing its Aussie sell-off with the pair dipping to as low as 0.5592 before regaining the 0.56 handle, trading at 0.5635 this morning. The FTSE 100 index ended the session lower on Monday with heavyweight commodity stocks under pressure, the UK Index closed down -1.9%. Only lower tier data among the releases on Monday with traders looking elsewhere. Last week comments from the BoE Catherine Mann prepared the case for a 50bps rate hike in May. However, it may be tough to convince the majority of the MPC to move to a larger basis point hike. In the face of recent inflation pressure, money markets are pricing in three more 25bps rate hikes in the coming months, bringing the peak rates to 1.5%. 

NZD

The AUDNZD pair has finally corrected from its momentum after reaching two-year highs last week, the pair giving back some gains and trading at 1.0846 this morning. Key drivers for the recent correction likely owed to the worsening situation of Covid in China. Meanwhile on the domestic front, the recent CPI data and RBNZ should remain in focus as analysts now expect further rate hikes from an already bullish Reserve Bank. SC said they now expect the RBNZ to hike the official cash rate to 50bps at the May meeting followed by 25bps in July.