Not even the Teflon-coated Australian dollar could escape the carnage in risk assets overnight

Photo by Scott Barbour/Getty Images

On Tuesday we observed the Australian dollar was Teflon-coated lately, rallying for five straight sessions, leaving its gain from early July at more than 3%.

Quiet simply, whatever bad news was thrown at it, it simply refused to stick. The Aussie was immune to negative influences.

Well, as you may have experienced, Teflon can eventually wear off, leading to a sticky situation.

The Australian dollar found that out first hand overnight, finally succumbing to a whirlwind of negative influences to post a sharp decline for the session.

The AUD/USD eventually finished at .7458, a loss of 1.01% on Monday’s closing level.

AUD/USD Hourly Chart

Rodrigo Catril, currency strategist at the NAB, put the slide down to an increase in investor risk aversion, something that pummelled risk assets, including the Aussie, in overnight trade.

“Core global yields have made new record lows amid an increase in risk aversion following news that a number of UK asset managers led by Standard Life were suspending redemptions on their property funds,” said Catril in his morning note.

Italian banks have also remained a cause of concern given the magnitude of their bad loans and as a result the fall in equities has been led by financial shares followed closely by materials and energy sectors given the souring global growth outlook.

“The Pound had another sharp fall while the Yen and USD have outperformed,” he added.

As a well known gauge of investor risk sentiment, the Aussie understandably came under pressured, weighed down by not only signs of financial stress in the European markets but also steep declines in crude oil and iron ore futures.

After a barrage of major market moving data on Tuesday, the economic calendar all but dries up on Wednesday with no major events scheduled domestically or across the broader Asian region.

RBA assistant governor Guy Debelle will speak at 5.30pm AEST, although, given the subject matter of his speech — FX code of conduct — it’s unlikely to drop any hints on the outlook for monetary policy.

Given the absence of market moving data, Asia will likely revert back to taking its cues from the movements in Chinese stocks, something that tends to be influential whenever things are quiet across the region.

Headlines relating to UK property funds or Italy’s banking system will also be influential, presuming any arrive.

While there’s nothing doing in Asia, Catril explains that it’ll be a busy session in the US overnight with a raft of important events scheduled, none less that the release of the US FOMC’s June meeting minutes.

“At the stroke of midnight we get the ISM non-manufacturing survey followed by the June FOMC minutes at 4:00am (AEST) on Thursday,” says Catril.

In particular, Catril believes markets will be paying close attention to the employment subindex in the ISM report given it acted as a good lead indicator for the sharp decline in US employment growth seen in May.

“In May the sharp fall in the employment sub index preluded the outrageously soft May payrolls number (38k vs 160 exp) and with the focus back on the US this week, strong data prints could have a material impact on Fed rate hike expectations and the USD,” he says.

Here’s the Aussie dollar scoreboard as at 7.50am AEST.

  • AUD/USD 0.7456 , -0.0002 , -0.03%
  • AUD/JPY 75.82 , -0.03 , -0.04%
  • AUD/CNH 4.9870 , -0.0017 , -0.03%
  • AUD/EUR 0.6736 , 0.0003 , 0.04%
  • AUD/GBP 0.5725 , -0.0001 , -0.02%
  • AUD/NZD 1.0416 , -0.0006 , -0.06%

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