Risk-Off Mood Demolishing AUD and Equities
AUD
A harrowing day for the Aussie dollar, suffering significantly against across the board, amid a fearful risk off market sentiment, resulting from a Chinese production concerns and the ongoing conflict between Russia and Ukraine. The Chinese data was worrisome, export growth slowed sharply, to +3.9% in April from a year earlier and compared to +14.7% in March. This is the weakest result since mid-pandemic June 2020. The CCP have attempted to assure businesses that they are striving to support them yet foreign companies operating in China report that, through May, their factories have not re-opened, with one third of the countries economic power in lockdown the international market may see more supply-hangovers due to China’s inability to push enough product away out of its ports. Local equities getting battered with the ASX down -1.2%, SHANGHAI COMP up slightly by 0.1%, with the NIKKEI performing worst, suffering a loss of 2.5%. Commodities not much more optimistic with Gold down 0.4% and Iron Ore down 2.5%. Nothing of notable significance to be seen out of local market data for the Aussie for this week, with only the Wage price Index and Employment data set for Wednesday and Thursday next week respectively on the cards ahead. Of course, the Federal election set for May 21 rages on through our nation, which could create further uncertainty for the under-fire AUD.
USD
The Australian dollar slumps towards near two-year lows against the greenback, surrendering the psychological support level at 0.70 and currently trading at 0.6950 at time of writing amidst a dismal market mood. Discussions around stagflation circulate in discussions around US macroeconomic forecasters with the market mood remaining quite negative, as shown by US equities recording substantial losses amidst a high US bond yield Treasury environment as pundits question whether the Fed would be able to tackle inflation without spurring a recession. In Equities the slide continued on Wall St overnight amid a fearful market with the NASDAQ suffering worst down 4.3% followed by the S&P 500 down 3.2% and the Dow Jones also in the red, down 2.0%. Fed’s Bostic hit the wires saying that he did not believe the Fed needed to hike in increments greater than 50bp and predicted that the Fed would hike 2 or 3 times before pausing to assess. Though he added that he would support hiking into restrictive territory if warranted, the comments sent US yields and the greenback lower with the commodity currencies back towards mid-range He also said 75-bps rate hikes are not his baseline, but he’s not taking anything off the table. Little in the way of meaningful macro-economic data out of the US today but looking ahead we will see the CPI and PPI data releases set for Wednesday and Thursday nights respectively later in the week remaining the big ticket items for the week.
EUR
The AUDEUR pair has plummeted well into the 0.65 bracket back down to levels seen mid-march earlier in the year, currently trading at 0.6586 at time of writing amid a high-risk sensitive market as outlined earlier. European Equities were heavy into the close and ended the day firmly in the red with losses of 2.1% for the Dax and 2.8% for the CAC. Despite celebrations of Victory Day in Russia yesterday, fears around more significant incursions in the Russia-Ukraine war seemed to have been unfounded as no major movements have been made in the conflict on the day. Putin delivered an address at the Victory Day Parade, stating Russians are fighting for the security of their nation, adding that the West was preparing for the invasion of Russia. This was followed by G7s most-industrialised countries pledged to ban the import of Russian oil, giving until 2024 to cease imports of Russian fossil fuels. In other more positive news a EU envoy to the UK has said they are open to start talks again on Northern Ireland protocol after the election period. While in in geo-political news, EU President von der Leyen announced that Ukrainian President had lodged paperwork to join the EU with an initial response regarding their membership prospects likely in June. Not much to be seen on the Eurozone macro-economic calendar today with most interest still focused on the possible timing of the ECB's interest rate hikes which we may se clues for on Wednesday as President Legard hits the wires in the late afternoon.
GBP
AUD is down heavily here too, losing the majority of the ground it had gained over May now trading at 0.5641 at time of writing. UK Equities suffering similarly to its international contemporaries with the FTSE making losses of 2.3%. In geopolitical news Sinn Fein’s victory in Northern Ireland’s elections, is considered to be a major negative for Brexit as the party aims to rejoin the Irish nation with the old continent, UK Foreign Secretary Liz Truss gave up on Brexit talks with the European Union (EU). Looking ahead, UK PM Johnson’s address to the House of Commons will be crucial to watch as the national leader will unveil Brexit benefits and may touch upon the latest difficulties in talks with the bloc. Other than this a lot of pundits currently speculate over the possibility of the UK headed for recession yet more conservative figures remain optimistic. Not a significant amount to be seen in local data out of the UK today, yet we will see a slew of data set for release on Thursday afternoon later in the week, beginning with GDP figures followed by Construction Output, Goods Trade Balance and Industrial and Manufacturing output data.
NZD
The Aussie trades somewhat sideways against its cousin across the ditch currently at 0.1.1003 at time of writing, as both commodity currencies ride the wave of fear in the market. As is typical not a great deal to see in local market data with only the FPI m/m, Visitor Arrivals m/m that may have an impact on the tourism industry followed by Inflation Expectations to be witness from the NZ calendar this week Thursday.