The Aussie dollar is tumbling as concerns about emerging markets resurface

Chung Sung-Jun/Getty Images
  • The Australian dollar came under renewed selling pressure on Wednesday, driven lower by heightened investor concerns surrounding Italy’s fiscal position and another ugly session for emerging markets in Asia.
  • The AUD/USD fell to as low as .7162, a two-week low.
  • The performance of emerging markets in Asia will likely dictate the Aussie’s broader direction today despite the release of domestic economic data.

The Australian dollar came under renewed selling pressure on Wednesday, weighed down by heightened investor concerns surrounding Italy’s fiscal position and another ugly session for emerging markets in Asia.

Here’s the scoreboard at 7am in Sydney.

AUD/USD 0.7187 , -0.0036 , -0.50%
AUD/JPY 81.70 , -0.57 , -0.69%
AUD/CNH 4.9480 , -0.0262 , -0.53%
AUD/EUR 0.6224 , -0.0013 , -0.21%
AUD/GBP 0.5537 , 0.0001 , 0.02%
AUD/NZD 1.0896 , -0.0018 , -0.16%
AUD/CAD 0.9218 , -0.0039 , -0.42%

After doing very little in the first half of Asian trade, including following the RBA’s October interest rate decision, the Aussie’s slide began as European markets opened, falling back below 72 cents against the US dollar, a level it remained for the remainder of the session.

More jitters surrounding Italy, as well as weakness in emerging market stocks and currencies in Asia, appear to have been the catalyst behind the move, said Ray Attrill, Head of FX Strategy at the National Australia Bank.

“The Euro’s drop was entirely an Italian affair, while we’d place more of the blame for the drop in the Aussie at the door of Asian Emerging Markets,” he said.

“Earlier pressure on the likes of the Indonesian Rupiah saw it rise above 15,000 for the first time since 1998. The Korean Won was also significantly weaker, later joined by what proved to be a temporary spike in USD/CNH.”

The USD/CNH briefly topped 6.9 for the first time since mid-August, coinciding with the steep drop in the Aussie dollar. The Aussie has tended to have a reasonable correlation to the offshore traded Chinese yuan whenever the data calendar is quiet.

After hitting a two-week low of .7162, the AUD/USD managed to recover back to .7200 before running into renewed selling.

Investing.comAUD/USD Hourly Chart

“The message is fairly clear — if we are not out of the woods regarding pressure on Emerging Markets, not just from the likely scaling up of US tariff actions on China but also rising US rates and potentially higher USD/EM Asia FX, the AUD is equally not out of the woods in terms of risk of returning to retest post-2014 cycle lows below 0.70,” Attrill said.

Turning to the session ahead, the performance of Asian financial markets, rather than the economic data flow, will likely dictate the Aussie’s direction once again, especially movements in the Chinese yuan.

The data calendar is relatively quiet with only building approvals and the Ai Group’s Performance of Services Index released in Australia. Regionally, a swathe of services PMI reports will be released.

Later in the day, data highlights include services PMIs from Europe, the UK and US along with ADP Private sector employment and EIA crude oil inventories from the US as well Eurozone retail sales.

Turkish consumer price inflation data for September will also be released, carrying the potential to spark or ease concerns over emerging markets.

On the central bank front, Powell, Mester, Barkin, Brainard and Evans from the US Fed are all scheduled to be in action.

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