If there is one indicator that global investors are genuinely concerned about the outcome of the Greek vote and the potential it has to cause uncertainty and raise volatility across markets, it is the mini-crash of the Aussie dollar over the past few days.
Trading in the low 77 cent region against the US dollar just days ago, the Aussie is starting the trading week is sitting around 0.7470/80, down another 0.4% from Friday night’s very weak close of 0.7512. That brought it down to a new six year low: the Aussie is now below 75 cents for the first time since 2009.
Traders are likely to have some concern that, as the NAB suggested, the RBA announces its monthly interest rate decision at 2.30pm on Tuesday in Sydney.
But, an Aussie dollar under pressure at the moment also suggests traders and investors are betting on broader market volatility. For decades now one of the key drivers of the Aussie has been “investor sentiment” — what you might call risk appetite.
On the other side of the coin currency traders usually flock to the Yen and sell USDJPY during times of trouble. The Yen is the forex market’s “safe haven” trade.
So with the Aussie dollar below 75 cents and the yen under 122, markets are signalling a heightened level of concern about the impact of the Greek “No” vote.
Over the weekend Mohamed El-Erian said a “No” vote could lead to global stock market selling, while sentiment around when the Fed will begin to tighten rates is already moving back towards the end of the year from the September meeting. That almost guarantees that bond rates in the US rally. German bonds are likely to surge again as well.
With many investors having expected the “Yes” vote to win there is a real chance they have been blindsided and El-Erian will be right. If so, watch the Aussie dollar and Yen as lead indicators that bigger market moves are about to kick off.