Stocks are sliding, volatility is elevated and the crude oil price just took another hit.
It’s not the kind of market conditions that the Australian dollar usually thrives in, and such was the case on Thursday.
As seen in the scoreboard below as at 7.50am AEDT, the Aussie is under pressure against all major currencies except the Chinese yuan.
AUD/USD 0.7782 , -0.0039 , -0.50%
AUD/JPY 84.62 , -0.87 , -1.02%
AUD/CNH 4.9552 , 0.0133 , 0.27%
AUD/EUR 0.6353 , -0.0023 , -0.36%
AUD/GBP 0.5595 , -0.0038 , -0.67%
AUD/NZD 1.0769 , -0.0032 , -0.30%
AUD/CAD 0.9805 , -0.0021 , -0.21%
At .7782, the AUD/USD currently sits at the lowest level since late December, extending its decline from the high of .8135 struck on January 26 to over 4%.
At the time of writing, it’s at a session low, coinciding with a slide in the Dow of more than800 points.
David de Garis, Economist at the National Australia Bank, put the continued weakness in the Aussie down to a renewed pickup in market volatility.
“It’s back on,” he says.
“Just when it seemed safe to go back out, risk markets are on the defensive again, with European equities down 1.5%, but this time rising bond yields have re-emerged as the catalyst as they were at the end of last week on that higher than expected US average earnings print in the payrolls report.”
De Garis says the lift in yields was partially in response to hawkish commentary from several leading central bankers on both sides of the Atlantic.
Mark Carney, Bank of England Governor, said “monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period” in the bank’s latest inflation report, sending the British Pound hurtling higher as well as UK gilt yields.
Bill Dudley, New York Fed President and FOMC voter, was also sounding confident, describing the recent stock market selloff as “small potatoes”. On interest rates, he added that four interest rate hikes this year was possible if the economic outlook strengthened.
The subsequent lift in yields globally caused renewed concern in stock markets around the world, leading to sharp falls in both Europe and the US.
As a barometer of investor risk appetite, the Aussie dollar was duly hammered.
While investor sentiment will remain the key driver of movements today, there’s a number of important data releases scheduled in Asia today, headlined by the release of the Reserve Bank of Australia’s (RBA) quarterly Statement on Monetary Policy, or SoMP for short.
Of most interest will be the bank’s updated economic forecasts, especially the key core CPI figure.
Imre Speizer, Senior Markets Strategist at Westpac Bank, is not expecting any widespread changes from the RBA.
“Commentary in the Governor’s [February] policy decision statement suggests that the growth and headline inflation forecasts are likely to be unchanged,” he says.
In a speech delivered overnight in Sydney, RBA Governor Philip Lowe said the forecasts would be “largely unchanged from the previous set of forecasts”. He acknowledged that the bank was “expecting CPI inflation to be in the 2 to 2.5% range over the next couple of years”, adding that “underlying inflation… is expected to be a bit lower than CPI inflation”.
That suggests there’s unlikely to be any major surprises when the SoMP is released. For a reminder on what the bank was thinking three months ago, here are the RBA’s prior forecasts.
It will arrive at 11.30am AEDT.
Released alongside the report, the ABS will also issue Australian housing finance data for December.
Outside of those events, the other major consideration in Asia will be the release of Chinese consumer and producer price inflation figures for January.
From a year earlier, consumer price inflation (CPI) is tipped to lift by 1.5%, down from 1.8% in the 12 months to December. Producer price inflation (PPI) is also expected to moderate to 4.4% from 4.9% in December.
These releases used to carry significant market clout but that has ebbed over the years. Both will be released at 12.30pm AEDT.
Outside of that, there’s very little in the way of significant data or events, leaving sentiment and movements in the Chinese yuan — in the news in the last 24 hours — to dictate the Aussie’s direction.
Later in the session, data highlights include UK industrial output and trade figures for December and Canadian unemployment for January.
Ester George of the US Federal Reserve’s FOMC is also scheduled to speak.
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