On the back of rising risk aversion and technical selling, the Australian dollar closed sharply lower in overnight trade.
As was the case for stocks, the selling in the Aussie was primarily as a result of intensified concerns over German banking giant, Deutsche Bank.
“Growing concern that Deutsche Bank AG’s financial woes will spread to the global financial sector has dampened risk sentiment and undermined AUD,” said Elias Haddad, senior currency strategist at the Commonwealth Bank.
“The credit default swaps index on investment grade European financial entities has edged higher lately to near a two-and-half-month high,” he said, noting that the concerns over Deutsche led the US S&P 500 index to a loss of 0.9%.
The Aussie, as a proxy for risk sentiment, was always going to struggle. According to Tapas Strickland, economist at the NAB, the Aussie was the worst performer of G10 currencies in overnight trade.
Along with heightened risk aversion, traders may have been inspired by the failure of the Aussie to hold above the 77 cent level, a level it has tried and failed to bust on six separate occasions over the past two months.
In the wash up, the AUD/USD eventually closed the session at .7633, a level that it continues to oscillate around in early Asian trade on Friday. It had been as high as .7710 in Asian trade.
Ahead of a long weekend in many parts of Australia, there’s plenty of data releases scheduled for Friday both at home, in Asia and abroad.
“There is plenty on today’s calendar with the most market sensitive data points being the raft of Japanese data this morning, including CPI, the Chinese unofficial Caixin PMI, and tonight’s US PCE deflators,” says Strickland.
The Japanese data dump will arrive from 9.30am AEST, with the Caixin-Markit PMI report in China arriving at 11.45am AEST.
On the Australian data docket, new home sales for August will be released at 11am AEST. That will be followed 30 minutes later by private sector credit figures from the RBA. Neither will prove to be market moving.
Movements in USD/JPY, along with crude futures, will likely prove to be influential on the Aussie on what’s likely to be a low-volatility, low-volume day for markets.
Here’s the Aussie dollar scoreboard as at 8am AEST.
- AUD/USD 0.7630 , -0.0003 , -0.04%
- AUD/JPY 77.12 , 0.02 , 0.03%
- AUD/CNH 5.0915 , 0.0009 , 0.02%
- AUD/EUR 0.6799 , -0.0001 , -0.01%
- AUD/GBP 0.5883 , -0.0001 , -0.02%
- AUD/NZD 1.0513 , -0.0001 , -0.01%
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