Global recession fears could see AUD test 70 US cents

Daily Currency Update

The Australian dollar dropped on Friday to its weakest level since February and a six percent fall for the month, as demand for riskier assets declined on fears of a global recession. Opening just below the 71 US cent handle, the AUD/USD cross ascended to post intraday highs during the European session of 0.7179. Little movement was seen following the release of PPI data, rising 1.6% on the quarter and slightly above expectations.

Demand for safe-haven currencies was in play to close the week as Wall Street saw its biggest daily losses in two years. Tech stocks were sold off in droves with the Nasdaq recording a 4.2% drop and S&P 500 declining 3.6%. Oil fell on the day despite seeing a monthly gain as the commodity-linked currency saw over a full cent decline from its daily high and close 0.5% lower to 0.7060.

The Australian dollar opens this morning at 0.7067. All eyes will be eagerly focused on the RBA this Tuesday where markets are forecasting a pre-election hike of 15 bps to 0.25% and its first since 2010. Derivative markets are pricing a 94% chance following the soaring inflation print last week of 5.1% on an annualised basis in the March quarter. We expect support levels to hold onto moves approaching the heavily guarded 70 US cent mark while any upward push will likely meet resistance at the 71 US cent handle.