Risk off backdrop forces AUD/USD back below US$0.67

OzForex Research OzForex Foreign Exchange

Daily currency update

The Australian dollar drifted downward through trade on Monday, sliding back below US$0.67 as investors adopted a cautious tone to start the week. Protests broke out across China at the weekend, in response to Government official’s introduction of new lockdown restrictions. As Covid Case numbers rise authorities implemented new social distancing measures sparking unrest among citizens desperate for a reprieve. While the protests have been quashed under heavy police presence, markets appear caught between the negative near-term growth consequences of new lockdown restrictions and the promise of an end to Covid-zero policy. Uncertainty in China prompted weakness in the CNY, weakness that has spilled over to weigh on the AUD. Having given up US$0.67 the AUD marked overnight lows at US$0.6640. Having enjoyed a near 10% surge since marking lows below US$0.62 in early October the AUD has struggled to extend beyond resistance at US$0.6750. We anticipate markets will consolidate positions through the week and in the lead into Friday’s all-important US non-farm payroll print. With little of note on the domestic macroeconomic ticket attentions turn to key CPI inflation data from Europe and a US consumer confidence update.

Key movers

Price action across major currencies has been largely contained to state the week as investors balance near term headwinds against longer run expectations for a broader global economic recovery. Uncertainty in China and the subsequent depreciation in the Chinese yuan spilled over into key commodities, leaving currencies with the AUD, NZD and CAD all drifting lower. The euro enjoyed an early upturn north of 1.05 before giving up gains while the Japanese yen, despite higher global rates, outperformed amid a risk off backdrop. Our attention now turns to German, Spanish and Euro area CPI updates. We anticipate a sharp decline in monthly inflation pressures, however the cumulation of annual price rises is likely to remain above 10% and remains a crucial marker in governing near term ECB policy expectations. With inflation well above target an upside surprise will all but force policy makers to issue another 75-point hike while a downside shock could afford policy makers the excuse to slow the pace of adjustment and issue a 50 point adjustment. With analysts split on the result and the likely impact on ECB policy making we anticipate significant volatility leading into and out of the key headline data update.

Expected ranges

AUD/USD: 0.6580 – 0.6750 ▼
AUD/EUR: 0.6380 – 0.6480 ▼
GBP/AUD: 1.7820 – 1.8180 ▲
AUD/NZD: 1.0720 – 1.0820 ▼
AUD/CAD: 0.8920 – 0.9050 ▼

Author

OzForex Research

OzForex Foreign Exchange

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.