Global markets just had a wild night with the Aussie dollar below 74 cents at one point

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Bonds rallied and currency and commodity markets sold off heavily last night.

But if you look at the prices this morning for most forex pairs and oil you could be forgiven for thinking it was a quiet night. The Euro is at 1.1028, the Aussie at 0.7454 and the Yen is at 122.56. That’s not too far from where they were when Australian markets closed yesterday afternoon.

What drove the selling was an acute bout of risk aversion from European investors concerned about the ECB cutting off access to more cash from the Greek banking system and the fact that the Greece’s new finance minister turned up to the Euro Group talks with no fresh proposals.

That sent currencies and commodities into a tailspin.

The Euro was slammed hitting a low of 1.0915, USDJPY traded up to 122.88 and the Aussie dollar was crushed falling to a low of 0.7394, that’s the lowest level since May 2009. Action on commodity markets was equally brutal: Nymex Crude hit a low of $50.58 before rallying $2.50 to sit back above $53.00. Gold is the only major mover which hasn’t recovered. It’s sitting at $1,154 this morning down $15 an ounce.

AUDUSD 15 minute Chart (Go MArkets, MT4)

One thing worth noting though is that even though the Aussie has recovered, the Euro is back above 1.10 and Nymex Crude has rallied all the way back to $53.00 – largely on nothing – volatility begets volatility. To put it another way, volatility clusters.

Moves like last night are a result of a lack of liquidity, increase in uncertainty and reduced positioning by traders, investors and money managers. That’s understandable with the uncertainty around Greece still acute. But what it does is feed on itself in a negative spiral.

Last night moves in currency and commodity markets, and the associated bond market rally they caused, is a warning of heavy seas ahead.

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