The Australian dollar has fallen heavily as emerging market concerns resurface

  • The Australian dollar fell heavily on Thursday, giving up all of Wednesday’s post-GDP gains.
  • Renewed concern over emerging markets, especially Brazil, along with technical-related selling appear to have driven the move.
  • Chinese trade data will be released today. The G7 summit will also begin in Canada.

The Australian dollar has gone from the golden boy to the whipping boy of currency markets in the space of just 24 hours, giving back all of Wednesday’s post-GDP gains on Thursday.

A combination of renewed concern over emerging markets and inability to break through key resistance levels in Asia appear to be catalyst behind the Aussie’s reversal.

The scoreboard below as at 7am in Sydney reveals the broad-based losses seen on Thursday.

AUD/USD 0.7624 , -0.0042 , -0.55%
AUD/JPY 83.63 , -0.83 , -0.98%
AUD/CNH 4.8706 , -0.0181 , -0.37%
AUD/EUR 0.6462 , -0.0049 , -0.75%
AUD/GBP 0.5679 , -0.0035 , -0.61%
AUD/NZD 1.0842 , -0.0055 , -0.50%
AUD/CAD 0.9886 , -0.0037 , -0.37%

The Aussie’s slide began in Asia following the release of Australian trade data for April. While largely in line with expectations, it was enough to lead to profit-taking in the Aussie, kicking off prolonged move lower against all of the major crosses.

Ray Attrill, Head of FX Strategy at the National Australia Bank, says renewed concerns over emerging markets appeared to drive the move, possibly in response to speculation that the ECB may conclude its asset purchase program later this year.

“While there are no obvious catalysts for an apparent broadening of emerging market pressures in recent days, it is valid to speculate that the ECB’s mid-week signalling that the conditions for ending its QE bond buying program look to have fallen into place, is relevant,” Attrill said in his morning note.

“We’re not yet talking ‘QT’ [quantitative tightening] as is the case in the US, but another nail in the coffin at least of liquidity expansions from major central banks.”

In particular, Attrill says heightened concern over Brazil was the cause of the overnight move, and not just in the Aussie dollar also global bonds and equities.

The gradual slowdown, then eventual withdrawal, of central bank liquidity as QE programs are wound down then reversed, has raised the prospect of increased volatility in emerging markets.

As a currency often seen as a barometer of investor risk sentiment, and reliant on the performance of the global economy, the headwinds for further Aussie dollar strength could be challenged in such an environment.

That was certainly the case on Thursday, as seen in the performance of the AUD/USD below.

Turning to the session ahead, there’s some big data releases scheduled in Asia, headlined by Chinese trade data for May.

From a year earlier, exports and imports are expected to grow by 10% and 18.7% respectively, below the 12.9% and 21.5% levels seen in the year to April.

There’s no set time for the release, although it tends to come out around 1pm in Sydney.

Before that report arrives, Japan will also release revised Q1 GDP figures at 9.50am AEST.

Later in the session, data highlights include Canadian unemployment, German trade and German industrial production figures for April, something that is likely to be watched closely given recent weakness in orders.

On the policy front, G7 leaders will also assemble in Quebec, Canada, creating the potential for potential market moving headlines, particularly when it comes to trade.

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