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Sean Callow, Research Analyst at Westpac, points out that the Aussie had found little inspiration in Australia’s domestic data and events as the RBA’s familiar outlook for no change in the cash rate for some time has reduced AUD’s sensitivity to Australian data, given that it is hard to see when the RBA will next hold a meeting that is “live” for a rate change.

Key Quotes

“Such stability perhaps made the Aussie more vulnerable to a deterioration in global sentiment. The tipping point appeared to be news reports that the ECB was worried about the impact of the sliding Turkish lira on some large Eurozone banks. The fall in the euro was logical but some might have been surprised that AUD/USD tumbled at the same time, finally breaking below 73 cents and reaching 19 month lows in the mid-0.72s. After all, Turkey accounts for just 0.4% of Australia’s exports.”

“Yet AUD/USD typically finds it hard to ignore global equity swings.”

“It may be that the stable domestic outlook has heightened AUD’s sensitivity to the global mood.”

“This sounds a warning for the Aussie in coming weeks. Markets are already losing interest in the gyrations of the Turkish lira, as the standoff with the US continues. More substantively for AUD/USD, the US dollar appears to find fresh buyers both when risk aversion increases and when strong US data supports the Fed’s bullish outlook.”

“Over the past week, through all the fear over Turkey and other emerging markets, pricing for Fed tightening by year end has not budged from +40bp. This source of US$ support should remain solid into the 26 Sep FOMC meeting. As for commodity prices, the pressure on the likes of copper, zinc and iron ore hints that these key markets for AUD are focused more on trade tensions than Turkey. But as the chart shows, on the longer term view, AUD/USD could be already pricing enough gloom.”