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AUD back on the ropes

Published March 8, 2019

By Nicholas Cork

A tough 24 hours for the AUDUSD, initially weakening to 0.7020 on the back of Retail Sales data before exporter demand lifted it back to 0.7050, from where it weakened gradually all evening to test 0.7010 as other factors weighed.

The main factor being EURO after the ECB restarted stimulus and pushed back the path of rate hikes, and cut their growth and inflation forecasts through to 2021. This sudden change in forward guidance spooked investors and the EURO had its biggest drop in 9 months as it capitulated down to 18-month lows. The chances of a sharp bounce from here look limited as substantial option barriers triggered on the way down.

The USD index is sitting at year highs, a level it has tested a few times now since Q418. The chart shows the AUD is reasonably well correlated thus further gains in that index if seen will likely push the AUD sub 70 cents.

Also weighing is the rise in US yields again as AUD yields drift lower, however slightly tempering that view is the extraordinary amount of natural demand from our exporters, well supplemented by the additional flow from the Vale mine outage.

Tonight sees US non-farm payrolls as the major release…  a strong number will likely see a dip into the high 69’s, resistance at 0.7050 today.

AUD well correlated with the USD index (inverted) Reuters

AUD vs the I.R. differential in 2 YR futures – a big driver in 2018 (Reuters)