Risk off mood forces AUD toward year-to-date lows

Daily Currency Update

AUD - Australian DollarA risk off mood permeated markets overnight, promoting a sell off across equities and commodity currencies. The AUD, having tested a break above 0.7490 and 0.75 tracked lower, falling steadily toward 0.74 US cents as equities and treasury rates also fell. Markets largely ignored the stronger than anticipated domestic employment report. While the unemployment rate fell below 5%, the data precedes the latest Sydney and Melbourne lockdowns and perhaps portrays a false view of current labour market conditions. There appears no obvious catalyst for the shift in sentiment, instead ongoing uncertainty surrounding the delta variant, a slowdown in global growth expectations and a potential shift in Fed policy have sidelined investors. Markets continue to lack conviction and appear reluctant to extend the reflation narrative, dampening demand for the AUD and adding to near term downside pressure. With little of note on the domestic ticket we look offshore. NZ CPI data could help firm up expectations for an August rate hike. A strong print could help drag the AUD higher and investors chase NZD gains, while US core retails sales and consumer sentiment headline the overnight docket. With the AUD teetering near year-to-date lows, we continue to track the risk narrative for any signal the currency could extend the recent downturn.