The Aussie dollar’s getting poleaxed

  • The Australian dollar is getting poleaxed in late trade on Tuesday, falling heavily against all of the major crosses.
  • Cautious remarks from RBA Governor Philip Lowe, along with another bloodbath in stocks and commodity prices during the session, weighed upon all risk assets during the session, including the Aussie.
  • There’s almost nothing on the economic calendar until the second half of the session, leaving sentiment and other factors to dictate direction. As is usually the case, the performance of Chinese markets could be influential on the Aussie.
  • The US will release a raft of major economic data today ahead of Thanksgiving. The European Commission will also announce its final ruling on Italy’s 2019 budget.

The Australian dollar is getting poleaxed in late trade on Tuesday, falling heavily against all of the major crosses as stocks, commodity prices and investor enthusiasm tumbled during the session.

Here’s the scoreboard at 8am in Sydney on Wednesday.

AUD/USD 0.7220 , -0.0073 , -1.00%
AUD/JPY 81.34 , -0.74 , -0.90%
AUD/CNH 5.0120 , -0.044 , -0.87%
AUD/EUR 0.6349 , -0.0018 , -0.28%
AUD/GBP 0.5645 , -0.0029 , -0.51%
AUD/NZD 1.0621 , -0.0041 , -0.38%
AUD/CAD 0.9605 , 0 , 0.00%

After doing very little in Asian trade, consolidating upon the losses seen on Monday, the selloff in the AUD/USD resumed in Europe following a speech from RBA Governor Philip Lowe that struck a somewhat cautious tone on the outlook for the housing market and wage growth.

“A few years ago credit standards were way too loose, there has been a correction of that, but I am starting to be a bit concerned the pendulum might be swinging a bit too far the other way,” Lowe said in Q&A section at the CEDA Annual Dinner in Melbourne.

“I am hoping in time [the pendulum] will come back to the centre, so we are watching the ability of financial institutions to grow credit very carefully.”

Along with expressing “concern” over the slowdown in credit growth, Lowe added that the bank is “watching the housing market closely”.

He also struck a dovish tone on the outlook for wage growth — a key factor underpinning the bank’s forecasts for consumption, GDP growth and inflation in the future, acknowledging that Australia’s “full” employment rate is now likely below the bank’s previous estimate of 5%.

“I suspect nationwide, we could go to 4.5% unemployment without lifting wage growth too much,” he said.

With the unemployment rate sitting at 5%, and underlying inflation running at an annual pace of just 1.75%, the remark from Lowe all but reinforced the bank will not be lifting cash rates anytime in the foreseeable future.

“The probability of an increase in interest rates is higher than the probability of a decrease,” Lowe said. “If the economy continues to move along the expected path, then at some point it will be appropriate to raise interest rates.”

Lowe’s remarks kicked off a renewed bout of selling in the Aussie, a move that continued in the latter parts of the session as a combination of another bloodbath in stocks, steep declines in crude oil and bulk commodity prices, increased market volatility and continued concerns over a potential escalation in the trade war between the United States and China weighed on risk sentiment.

That saw traders flock back to the greenback, helping to limit the Aussie’s losses against the crosses.

The Kiwi was weighed down by a weak dairy auction with whole milk powder prices falling 1.8%, a big undershoot on futures that were pointing to a gain of 2%. The euro was also under pressures as concerns about Italy’s budget rose ahead of a final ruling from the European Commission today. The British pound was also sold on further Brexit-related dramas.

AUD/USD Hourly Chart.

Turning to the day ahead, it will yet again be another session where anything other than economic data will dictate market direction: there’s almost nothing on the calendar until the second half of the session that will interest traders.

The main highlights come from the United States with durable goods orders, existing home sales, University of Michigan consumer sentiment and jobless claims all arriving ahead of Thanksgiving on Thursday.

Given the proximity of the holiday, market interest, and potentially volatility, may die down in the latter parts of the week.

Outside of the US, the other main event today comes from Europe with the European Commission set to deliver its final ruling on Italy’s proposed 2019 budget.