Volatility surges and AUD in free fall as global recession fears elevated
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Daily Currency Update
Another wild 24 hours across financial markets as risk sentiment craters amid rising fears the US and global economies are running headlong into recession and tensions rise in the Middle East. The AUD plunged through US$0.65 and US$0.64, marking intraday lows below US$0.6380, as markets scrambled to adjust expectations for Fed policy and global growth.Risk aversion peaked during the Asian session with the Nikkei printing its largest single day decline since 1987, down 12.4%. The flash sell-off across equities extended to the AUD and the embattled unit plunged to mark fresh 2024 lows and seemed set to take out October 2023 supports. With markets in free fall, stronger than expected US ISM services data and supportive comments from Fed policymakers helped temper negative sentiment and markets set about unwinding the flash sell off. The AUD rebounded back through US$0.64 and US$0.6450, opening this morning just below US$US0.65.
Our attentions turn now to the RBA policy meeting. We expect policymakers will leave rates on hold as inflation remains well above target. We expect few changes in domestic rate expectations and are still pricing in the first rate cut for May 2025.
Key Movers
The US dollar plunged while the yen surged through trade on Monday amid another wild 24 hours across financial markets. Global stocks nosedived and risk assets cratered while the USD gave up half a per cent as rising fears of recession sent markets into a tailspin and drove investors toward haven assets. Friday’s non-farm payroll print fell well short of market expectations and amplified calls for the Fed to begin a swift recalibration of interest rates in a bid to stave off recession.The US dollar tumbled against key risk-dominated counterparts, with the yen and Swiss franc enjoying gains. While the euro enjoyed modest upside, the GBP edged lower and commodity led currencies faltered. Markets were in free fall until US ISM services data surprised to the upside, improving on the lacklustre June print and moving once again into expansionary territory. The stronger-than-expected print helped alleviate fears for recession and suggests the extent of the economic slowdown may not be as bad as first thought. Price action stabilised through the later hours of overnight trade and most G10 currencies are now back within 0.5% of their weekly open.
While the VIX volatility index remains elevated and at its highest level since November 2020, our attentions turn to the RBA policy meeting and risk sentiment as key drivers for direction.
Expected Ranges
- AUD/USD: 0.6380 - 0.6580 ▼
- AUD/EUR: 0.5850 - 0.6000 ▼
- GBP/AUD: 1.9500 - 2.0000 ▼
- AUD/NZD: 1.0850 - 1.1050 ▲
- AUD/CAD: 0.8880 - 0.9050 ▼