AUD plumbs new lows as markets face a wall of uncertainty

Daily Currency Update

The Australian dollar plumbed new lows through trade on Thursday amid rising concerns surrounding the global growth outlook and on-going US debt ceiling uncertainty. The risk off mood that enveloped markets at the beginning of the week extended into a fourth day of trading, forcing the AUD through supports at US$0.6530 and toward fresh 2023 lows below US$0.65. Markets remain preoccupied with US debt negotiations. Rating agency Fitch moved the US rating watch to negative, a signal it may be preparing to downgrade its AAA credit rating, while Moody’s eye a June 15 coupon deadline as a critical marker for default. Concerns the debt limit will not be raised or extended before funding runs out have risen this week as Republicans and Democrats struggle to find common ground. With early investor optimism eroding, the AUD has collapsed under the weight of risk aversion, while rising concerns surrounding the global growth outlook have compounded this week’s downturn. Persistent global inflation pressures and a definitive slowdown in Chinese industrial production have elevated fears a global rebound in economic activity may not materialise in 2023. Monetary policy is likely to remain tighter for longer as central banks battle to control inflation, and in an environment where growth is already under pressure further rate hikes will only act as an additional handbrake to recovery. Having touched intraday lows at US$0.6499 the AUD looks set to close the week some 2% below the weekly open. With little of note on the domestic ticket outside retail sales data to drive a recovery, our attentions remain affixed to US inflation data, debt ceiling negotiations, and the broader risk narrative.