AUD tumbles as volatility runs riot and commodity prices collapse

Australian Dollar:

The Australian dollar tumbled through overnight trade touching six year lows of 0.7009. Having enjoyed a relatively stable and quiet domestic session after the Reserve bank opted to maintain the current cash rate and offered little to surprise investors in its accompanying rate statement. The AUD maintained intraday ranges between 0.7100 and 0.7150 before softer than anticipated Chinese Manufacturing and Services data and a near 5% drop in the Shanghai Composite sent Global stocks and commodity prices into a tailspin. Oil plunged back below $50 USD a barrel while Copper prices fell almost 1%. China is a fragile beast at present as investors continue to question the true state of the economic growth in the 2nd world’s largest economy. Attentions now turn to Domestic second quarter GDP numbers for direction through trade today. A poor print could prompt a move through support at 0.70 and promoting a deeper downward correction.

• We expect a range today of 0.6850 – 0.7200

New Zealand Dollar:

The New Zealand dollar edged higher through domestic trade on Tuesday having found support at 0.6345 before a collapse in Chinese and global stocks and a general move toward risk aversion saw the commodity driven NZD plunge to fresh 6 year lows touching lows at 0.6315 overnight. Chinese Manufacturing output fell to 3 year lows while the services sector cooled promoting concerns as to the true scale of economic slowdown in the world’s second largest economy. As volatility continues to haunt currency markets and commodity prices remain vulnerable the outlook for the NZD in the short to medium term remains bearish with attentions turning to Key US labour market indicators as markets for possible Fed action later this month.  

• We expect a range today of 0.6210 – 0.6390

Great British Pound:

Sterling fell back through 1.5350 overnight as investors responded to a marginal fall in Manufacturing output and a general increase in risk aversion. Another sharp fall in the Shanghai composite prompted a collapse in global stocks and commodity prices forcing investors to amend expectations of a September Federal Reserve rate hike and early Bank of England Monetary policy adjustment. Volatility continues to drive Central Bank Policy expectations and as global growth concerns push back investors expected timelines of policy normalisation traders are unwinding USD and GBP longs and buying back into the safe haven JPY, CHF and lower yielding Euro. Attentions now turn domestically to construction PMI ahead of key U.S employment indicators for direction through midweek trade.

• We expect a range today of 2.1525 – 2.2025 

Majors:

Volatility ran riot through stocks and currency markets on Tuesday prompting a flight to haven assets as investors responded to another string of softer than anticipated Chinese macroeconomic indicators and pared expectations as to the timing of a Federal Reserve rate hike. The US dollar enjoyed a mixed session advancing against emerging market and commodity driven currency pairs after Chinese Manufacturing contracted at its fastest pace in three years while the services sector also eased. Concerns as to the true scope and size of China’s economic slowdown continue to weigh on the global outlook raising the question - Can the Fed adjust rates in the current environment?  The World’s largest Central Bank continues to promote mixed and conflicting messages clouding markets expectations. New York Fed president Bill Dudley appears to be leaning toward maintaining the current status quo while Federal Reserve Vice President Stanley Fisher suggested that a gradual increase in borrowing cost was appropriate, when speaking at the Jackson Hole Monetary Policy Symposium at the weekend. This uncertainty is driving Greenback direction and leaving the currency vulnerable to risk swings with investors looking to the safe haven Yen and Swiss Franc and lower yielding Euro as they unwind long positions. The Yen touched a one week high overnight while the Euro jumped 0.5% to open at 1.1317 this morning.

Data releases:

• AUD: GDP q/q
• NZD: GDT Price Index and ANZ Commodity Prices m/m
• JPY: Monetary Base y/y
• GBP: Construction PMI
• EUR: Spanish Unemployment Change and PPI m/m
• USD: ADP Non-Farm Employment Change, Revised Non-Farm Productivity q/q, Revised Unit Labour Costs q/q, Factory Orders m/m and Crude Oil Inventories.