- The Australian dollar suffered its third-largest decline of 2018 on Wednesday.
- A stronger US dollar and deterioration in investor sentiment — both linked to escalating trade tensions between the US and China — saw commodity prices tumble.
- Movements in Asian trade will continue to be be driven by shifts in investor sentiment.
The Australian dollar tumbled on Wednesday, recording its largest decline in a month.
The catalyst was an escalating in trade tensions between the United States and China, something that took its toll on stocks, commodities and any China-linked asset, including the Aussie.
Here’s the scoreboard as at 7am in Sydney.
AUD/USD 0.7366 , -0.0092 , -1.23%
AUD/JPY 82.49 , -0.28 , -0.34%
AUD/CNH 4.9516 , -0.0078 , -0.16%
AUD/EUR 0.6308 , -0.0041 , -0.65%
AUD/GBP 0.5576 , -0.0041 , -0.73%
AUD/NZD 1.0898 , -0.0006 , -0.06%
AUD/CAD 0.9725 , -0.0053 , -0.54%
“[The] reaction to the US plans to impose tariffs on an additional $US200 billion of Chinese goods has triggered a sell off across risk assets overnight,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.
“European and US equities are down 0.5% and 1.6% and the commodity complex is also a sea of red with Brent oil down over 6%.”
Along with an escalation in trade rhetoric between the two sides, the US dollar also received tailwinds from stronger-than-expected US economic data with producer prices inflation and wholesale inventories both beating expectations, adding to the case for stronger economic growth, faster inflationary pressures and continued rate hikes from the Fed.
The strength in the greenback, combined with the sharp deterioration in investor sentiment, saw commodity prices tumble across the board.
As mentioned above, crude oil was smoked, as were base metals. Even precious metals — regarded as safe-haven assets — were pressured.
Given the Aussie is not only a commodity-linked currency but also deemed by many to be a China-proxy, it’s little wonder the AUD/USD finished the session nursing a loss of over 1.2%.
The decline was the largest in percentage terms since June 14, and the third-largest this year.
The Aussie also lost ground against the crosses, including the New Zealand and Canadian dollars, with the latter supported by a increase in official interest rates from the Bank of Canada.
Turning to the day ahead, with no major data events scheduled in Asia, sentiment and technicals look set to dictate the direction of the Aussie.
If the prevailing theme of recent weeks is maintained, the movements in Chinese financial markets, especially the Chinese yuan, could prove influential.
All the main releases arrive in the second half of the session with CPI data from Germany, France and the United States, along with Eurozone industrial production, the headline acts.
Kashkari and Harker from the US Fed are also delivering speeches.