AUD/USD tumbles as threat of war looms large

Daily Currency Update

The Australian dollar fell through trade on Monday, giving up 1% and slipping below 0.71 US cents. Lasts weeks sell off across equities and risk assets found new vigor as selling pressures intensified amid fears Russia and Ukraine are on the brink of war,  the omicron variant will drive a slower economic recovery and monetary policy conditions will tighten faster than first expected. Having tested 0.72 on open the AUD tracked sideways through much of the domestic session before a steady decline overnight. Russia’s military buildup around Ukraine has intensified in recent weeks and intelligence suggests Putin is preparing a rapid assault designed to take out the capital Kiev. World leaders have warned of “massive consequences” should Russia choose to invade with the threat of war derailing risk appetite and driving investors toward haven assets. The AUD touched intraday lows at 0.7090, before finding some support into this morning’s open where it currently buys at 0.7140 US cents. Our attentions remain with ongoing Russia/Ukraine developments, while Domestic CPI data will provide a valuable insight into local price pressures. With median estimates pricing a 0.7% increase in trimmed mean CPI through Q4 2021, pushing the annual rate of inflation toward the top of the RBA’s target band between 2-3%. A print at or above 2.8% confirms Quantitative Easing measures are now outdated and will heap pressure on the RBA to end supports when it meets next week and heap pressure on policy makers to adopt a more hawkish approach to monetary policy normalisation. Note: There will be no commentary tomorrow with Australian markets closed for Australia Day.

Key Movers

Safe haven currencies outperformed Monday as investors sought to dump risk assets. The USD outpaced major rivals with the DXY dollar index up almost half a percent, testing a break above 96. The threat of war and the promise of tighter monetary policy have driven a sharp selloff in risk assets through the last week with major indices suffering the largest weekly drop since the Pandemic began in March 2020. With Emerging Market currencies bearing the brunt of the correction, the sell off has spilled into developed markets as risk and commodity sensitive major currencies have come under intensified selling pressure. The AUD lead losses while the NZD, CAD and NOK all tumbled. The Pound has fallen below 1.35, yet found support on moves approaching 1.3450 while the Euro proved surprisingly resilient stubbornly staving off a push below 1.13 and recovering into today’s open. Unsurprisingly in this risk off environment the Yen has outperformed with the AUD testing a break below 81 and the NZD giving up 76. Our attentions remain with the broader risk narrative while German IFO business confidence and US consumer confidence headline the macroeconomic ticket.

Expected Ranges

• AUD/USD: 0.7020 – 0.7190 ▼
• AUD/EUR: 0.6270 – 0.6350 ▼
• GBP/AUD: 1.8850 – 1.9020 ▲
• AUD/NZD: 1.0580 – 1.0720 ▼
• AUD/CAD: 0.8980 – 0.9050 ▼