The Australian dollar softened in overnight trade as an increase in risk aversion ahead of key political events late in the week overrode further strength in Australian key commodity export prices.
Here’s the scoreboard as at 8am AEDT:
- AUD/USD 0.7471 , -0.0028 , -0.37%
- AUD/JPY 85.25 , -0.57 , -0.66%
- AUD/CNH 5.1227 , -0.0081 , -0.16%
- AUD/EUR 0.7047 , 0.0007 , 0.10%
- AUD/GBP 0.6200 , 0.0047 , 0.76%
- AUD/NZD 1.0521 , -0.0004 , -0.04%
Rodrigo Catril, currency strategist at the National Australia Bank, said that the Aussie was undermined by geopolitical risk amidst holiday-thinned trade as a result of the Martin Luther King holiday in the US.
“News over the weekend reporting PM Theresa May will deliver a speech today outlining the UK plans to exit the EU and regain control of immigration triggered a selloff in the pound and has been the main catalyst for the risk aversion seen in Asia yesterday and Europe overnight,” he said in his Tuesday morning note.
Catril also noted that remarks from US president elect Donald Trump in recent days also contributed to market concerns.
“While the president elect comment that he wouldn’t name China as a currency manipulator on ‘day one’ was seen as a positive, he also said that his adherence to the One China policy depends on progress by China on trade issues. Given Beijing sensitivity on this latter issue, Trump’s comments have not been seen as conducive to ease tension between the two countries,” says Catril.
“Similarly, Trump’s prediction that other countries will follow Britain exiting the bloc while also labelling the EU a “vehicle for Germany” have raised concerns over the future transatlantic alliance.”
Combined, the remarks took their toll on risk assets during the session — including the Aussie dollar — overriding a fresh two-year high for iron ore prices, Australia’s largest goods export by dollar value.
Turning to Tuesday trade in Asia, Catril says that UK prime minister Theresa May’s highly anticipated speech will dominate market movements.
“The PM is expected to walk a fine line between providing enough information on the government’s intentions without necessarily showing too much of Britain’s negotiating hand ahead of official discussions with the EU,” he says, noting that the key take away from recent press reports is that the central scenario is shifting towards pricing a fast and potentially disorderly Brexit.
According to CNBC, the speech will be delivered at 10.45pm AEDT.
Before that event arrives later in the session, there’ll be a smattering of economic data releases in Australia and abroad, although none appears likely to shift the Aussie significantly in either direction.
In Australia, the weekly ANZ-Roy Morgan consumer confidence index will be released at 9.30am AEDT. That will be followed two hours later by housing finance data for November.
In Japan, the final industrial production reading for November will also be releaed.
Later in the session, markets will receive CPI and PPI figures from the UK along with the monthly ZEW investor sentiment reading from Germany.
While there’s no major US data events to speak of, Bill Dudley, New York Federal Reserve president, is scheduled to speak this evening.