Political chaos in Italy is keeping the Australian dollar under pressure

Bryn Lennon/Getty ImagesContagion.
  • Italian politics is a mess and financial markets don’t like it one bit.
  • Risk assets have been sold off all around the world, and the Aussie dollar has not been immune to the carnage.
  • There’s a stacked economic data calendar today, but it’s likely to play second-fiddle to the events in Italy.

Italian politics is a mess and financial markets don’t like it one bit.

Risk assets have been sold off all around the world, and the Aussie dollar has not been immune to the carnage.

Here’s where the Australian dollar is trading at 7am in Sydney.

AUD/USD 0.7505 , -0.0039 , -0.52%
AUD/JPY 81.63 , -0.91 , -1.10%
AUD/CNH 4.8209 , -0.0041 , -0.08%
AUD/EUR 0.6503 , 0.0014 , 0.22%
AUD/GBP 0.5661 , -0.0004 , -0.07%
AUD/NZD 1.0871 , 0.0009 , 0.08%
AUD/CAD 0.9766 , -0.0033 , -0.34%

Continuing the theme seen earlier in the week, the main theme of the session was ongoing political uncertainty in Italy.

It still doesn’t have a government, and when one is eventually formed, few expect that it will be functional, likely paving the way for early elections that some believe will be a quasi-referendum on whether Italy should retain the use of the euro.

The heightened levels of uncertainty, leading to that and other forms of speculation, hammered Italian assets on Tuesday.

The euro slumped to a 10-month low against the greenback while Italian bonds and stocks were smoked, leading to a broader selloff in risk assets, including the Aussie dollar.

Outside of Italy, trade tensions also resurfaced as the US announced plans to announce further tariffs on Chinese goods.

As a well-known proxy for investor risk sentiment, the AUD/JPY led the losses with loss of more than 1%. The AUD/USD fell by a smaller 0.5%, finishing the session at .7504.

Investing.comAUD/USD Hourly Chart

While the economic events calendar goes up a notch or two today, that’s unlikely to remove the vice-like grip that Italy holds over markets at present.

In Australia, markets will receive building approvals for April at 11.30am AEST. The seasonally adjusted figures from the ABS have resembled a cat on a hot tin roof in recent years, reflecting the increased influence of large-scale apartment developments as a proportion of total approvals.

Still, markets will be looking for any signs in the trend series that recent price declines in Sydney and Melbourne is leading to a pullback in approvals.

A decline of 3% is expected after a 2.6% gain in March.

Regionally, New Zealand will also release building permits data for April while RBNZ Governor Adrian Orr is also scheduled to speak.

Orr has already proven himself to be savvy market operator, managing to place downside pressure on the once high-flying Kiwi dollar.

Japan will also release retail sales data while BoJ Governor Kuroda will also deliver a speech. If recent form is anything to go by, both events are likely to be overlooked by markets.

Later in the session, data highlights include German CPI, unemployment and retail sales, French GDP and Eurozone consumer confidence.

Italy is also scheduled to auction off 5 and 10-year bonds. Good luck!

Across the Atlantic, markets will receive US GDP, PCE inflation, ADP private sector payrolls and its latest goods trade balance.

The Bank of Canada will announce its May monetary policy decision — no change is expected — while the US Fed will release its Beige Book on economic conditions.

However, as David de Garis at the National Australia Bank notes, even that stacked economic calendar is likely to play second-fiddle to the events in Italy.

“We await further news on the Italian political front,” he says.

“Polls are already suggesting increased support for the League and Five Star, but will Italians vote to leave the Euro if that what the election is fought over?”

NOW READ: Everything you need to know about the Italian political crisis — which is 9 years in the making and could bring about the demise of the eurozone

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