AUD/USD tumbles as rout on commodities and currencies continues

AUD - Australian Dollar

The rout on commodity currencies and risk assets continued through trade on Thursday. The fallout from the Fed’s hawkish update spilled into a second day, with markets scrambling to amend positions and expectations we’ve seen a sizeable shift across all financial markets with currencies, commodities and treasuries bearing the brunt of the correction. Commodity prices have slumped nearly 4% in the aftermath, led by steep depreciations in copper, silver and gold. The definitive risk-off move has seen the AUD move through key supports and shift below the 200-day moving average, breaking below 0.76 to touch intraday lows at 0.7540. The question now; is this a short-term reactionary response or a larger shift in the market narrative? The Fed has done little more than change the tone of its commentary. It remains committed to its accommodative monetary policy program through the short-term and appears unlikely to make any real policy changes in the near term, instead keeping their foot down in a push to drive further economic recovery. Yes, policy normalisation has been brought forward, but we can argue the RBA will be forced to bring forward its own guidance. Yesterday’s labour market print showed the domestic economy has rebounded swiftly from the worst of the pandemic. The unemployment rate fell to 5.1%, driven by an improvement in full time employment, a reduction in underemployment and uptick in the participation rate. The RBA has signaled conditions will unlikely support a rate hike before 2024, but on the current trajectory we can’t see them maintaining this path, perhaps adding some support to the AUD through the long term as any divergence in monetary policy expectations shrinks. The AUD remains firmly entrenched in a downtrend and having broken key supports already, further losses are not out of the question. That said, underlying fundamentals remain AUD positive and should help underpin the currency on moves approaching 0.75.

Key Movers

The US dollar remains firmly in the box seat enjoying the fallout from the Fed’s shift in tone and the current risk off backdrop. The Dollar index closed higher for a fifth consecutive day and has recovered half the depreciation suffered in the three months since March. Advancing against all majors outside the Japanese yen, the dollar has forced the euro below 1.20 and 1.19, breaking its 200-day moving average, while sterling has been driven out of its 1.41-1.42 range, breaking below 1.40 and 1.39 to touch lows at 1.3897. Our attentions remain with the current shift in narrative as we seek signals to determine if this shift is part of a larger change in narrative or a knee jerk response to headline market event.

Expected Ranges

AUD/USD: 0.7480 - 0.7680 ▼

AUD/EUR: 0.6290 - 0.6360 ▼

GBP/AUD: 1.8190 - 1.8580 ▲

AUD/NZD: 1.0720 - 1.0820 ▲

AUD/CAD: 0.9290 - 0.9380 ▼