A new day, same old story: AUD/USD tests new lows amid risk aversion

Daily currency update

The Australian dollar tested new lows through trade on Tuesday, unable to extend gains enjoyed through a brief improvement in the underlying risk narrative. Having slipped below US$0.6450, the AUD mounted a recovery through the domestic session clawing its way back above US$0.65 to mark intraday highs at US$0.6510. After two days of hyper volatility, markets appeared content in consolidating positions and investors looked again to risk assets, prompting a short-run improvement in demand for risk through the Asian session. The upturn was, however, short lived. More hawkish Fed commentary, coupled with a string of solid US data sets, fresh concerns surrounding UK economic vulnerability and a surge in gas prices conspired to push investors back toward haven assets, allowing the USD to recoup early losses and enjoy another overnight uptick. Faced with broad based USD strength the AUD drifted back below US$.6450, marking fresh lows at US$0.6415, a new 30 month low. With little of note on today’s macroeconomic ticket our attentions remain with broader market themes. The UK’s inherent vulnerabilities should continue to stifle any real risk on relief, while commentary from key European and US central bank figures and the promise of tighter financial conditions will continue to drive near term AUD downside.

Key movers

There was ample price action across currency markets through trade on Tuesday as a short-run improvement in the underlying risk narrative helped offer some respite to the embattled GBP, euro and yen. After two days of hyper volatility markets enjoyed a brief upturn through the Asian session, allowing the euro to claw its way back above US$0.9650, while the GBP poked its head above 1.08, and the yen forced the USD back toward 144. The upturn was however short lived as the focus shifted back to the UK as the epi-centre of recent currency turmoil. Pricing across UK rates continued to surge as markets price in a significant BoE policy response, amid mounting fears a credit crunch will sap even more energy from an economy already struggling under the weight of an energy crisis, fiscal debt crisis and balance of payments crisis. Having touched intraday highs at 1.0850, the GBP slipped back below 1.07 marking session lows at 1.0650. Concern for the UK, coupled with a surge in European gas prices, a string of stronger US data sets and more aggressive fed commentary forced investors back toward haven assets, prompting an overnight USD surge. The DXY dollar index closed higher on the day and with little of note on today’s macro ticket, elevated risk aversion should ensure it maintains much of the recent upturn.

Expected ranges

• AUD/USD: 0.6380 – 0.6530 ▼
• AUD/EUR: 0.6650 – 0.6750 ▼
• GBP/AUD: 1.6480 – 1.6920 ▲
• AUD/NZD: 1.1370 – 1.1470 ▼
• AUD/CAD: 0.8780 – 0.8920 ▼