AUD/USD pummeled as risk appetite craters

Daily currency update

The Australian dollar cratered overnight, giving up early gains amid a correction in risk appetite. With little headline data on hand to drive direction, the AUD found support through the domestic session marking intraday highs at US$0.6542, before giving up gains and falling steadily toward session lows below US$0.64. There appears no obvious catalyst for the elevated risk aversion outside of a broader market repositioning ahead of tonight’s all-important US non-farm payroll print. Early signs of vulnerability across the US labour market should ensure an outsized response to this month’s employment update. A surprise either side of median estimates should drive elevated volatility into the weekly close. We anticipate employment growth will have slowed when compared with recent months, while the unemployment rate should remain steady at 3.7%. Having touched intraday lows of US$0.6390, the AUD has found some support and buys US$0.6410 on open today. A robust US labour market update will sure up bets for another 75-basis point Fed rate hike and further widen the dollars yield advantage over the AUD. A break back below US$0.64 could see the September low of US$0.6360 tested.

Key movers

The US dollar was the day’s top performer, outpacing major counterparts amid a surge in risk aversion. With no obvious catalyst driving the shift in risk narrative, it appears more aggressive Fed monetary policy speak and a gloomy growth forecast from the IMF have spooked investors leading into tonight’s all-important US non-farm payroll print. Fed member Neil Kashkari said the bank was “quite a way away from pausing the current hiking cycle”, while other key policy makers offered similar rhetoric. The promise of tighter financial conditions coupled with another IMF downgrade to global growth appears enough to reverse the weeks risk trend. The euro fell back below 0.98, while sterling fell 2% touching intraday lows at 1.1115 before finding some support and moving back to 1.1185. The USD/JPY remains stubbornly range bound, as the promise of ministry of finance interventions limits investors appetite to extend gains. Attentions turn now to US non-farm payroll data. Early signs of vulnerability across the labour market should drive an outsized response to this month’s print. A stronger than anticipated read will give the Fed confidence to continue pushing the pace of rate adjustments, while a surprise downturn will likely elevate recession fears and in the current theme of bad news is good news, potentially drive a risk on rally into the weekly close.

Expected ranges

• AUD/USD: 0.6360 – 0.6530 ▼
• AUD/EUR: 0.6480 – 0.6620 ▼
• GBP/AUD: 1.7280 – 1.7520 ▼
• AUD/NZD: 1.1250 – 1.1380 ▲
• AUD/CAD: 0.8780 – 0.8880 ▼