AUD: Currency Index & Volatility

Relative Currency Strength

During the period the majority of the currency indexes was varying in a range of -1% - +1% from the base value. Only a few gauges – the NZD, EUR and AUD indexes – went outside the boundaries, with the later tumbling below its peers, and the first two finishing the period well above others. While the Euro was appreciating throughout the whole period, fuelled by improving sentiment about the Greek issue, the Kiwi was notably fluctuating, posting gains after the RBNZ’s rate statement and Governor Wheeler’s optimistic economic conditions assessment, and weakening at the back of decreasing trade balance announcement.

The Aussie was undoubtedly the worst performer during the period. Starting from Wednesday, when the Australia’s CPI of the second quarter was released slightly lower-than-expected, the AUD Index never crossed above the base value. Steady depreciation during the period’s first two days was accelerated by a 0.8 points drop following the announcement of another fall of China’s manufacturing PMI. No recovery was observed during the next days, and by Tuesday morning the gauge reached its minimum of 97.68 points. Nevertheless, later, in absence of any economic releases, the two Pacific majors rallied, so the AUD Currency Index pared some losses and finished the period with a -1.37% weekly change.

Volatility

With its rapid descent and early Tuesday rebound, the Aussie became the week’s second most volatile currency, topped only by its New Zealand counterpart. The greatest portion of turbulence was contributed by the AUD/USD and GBP/USD components, ushered not only by the Aussie’s moves, but also by its peers’ fluctuations, as the dollar and the pound both posted over 25% elevated volatility portions. Meanwhile, the period’s sharpest reaction came from AUD/NZD, when the Kiwi surged against its peers after the RBNZ eased its opinion on the currency’s excessive strength. The move was notably critical for AUD/NZD, as its 3.98 volatility index spike stood well above the Kiwi’s mean turbulence surge of 3.16.

The AUD volatility index suffered three major above-the-market surges in the past five trading day. The first one happened as the Aussie opened the period by zigzagging on the back of the CPI release. On Friday morning, volatility jumped to the period’s high as the Australian dollar was hit by the data showing the Chinese manufacturing activity slowed more that expected. Finally, early Tuesday saw the commodity currencies unexpectedly pick up, with the Aussie taking the highest jump and boosting its volatility for the greatest part of the morning.

Currency Significance

The Aussie’s across-the-board weakening boosted its significance measure, lifting its pairs’ average correlations above the historical and making the distributions trim their lower tails. However, in terms of market influence, the Australian dollar competed with its New Zealand counterpart and lost, meaning that the AUD/NZD was largely affected by the Kiwi’s pull. Thus the AUD/NZD component was the only one among the AUD/USD combinations to post a lower-than-historical average and stretch the distribution into the negative area.

The AUD composite started the period with a weakening, as the Kiwi’s, the dollar’s, and the pound’s measures were dominating their counterparts, but jumped almost 0.4 points to 0.74 when the Aussie tumbled on Friday. Afterwards, the composite slid from its high as the new week opened, but remained among the strongest significance measures, fluctuating between 0.45 and 0.6. Another surge came from the Aussie’s recovery on Tuesday, but was pared almost completely when the AUD composite was pushed down by a late spike in Kiwi’s significance, which jumped after the RBZN governor Wheeler’s speech.