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Here's Why AUD Got Smoked Today...



AUD has been getting slammed today and is the worst performer in the G10, with the cross down some 1.3% at the time of writing against USD. That has taken AUDUSD below the earlier October low around 0.7100 and below its 200dma (at 0.7090) for the first-time mid-May.


So why has AUD been getting hit so hard today?


1) Virus concerns trigger risk off flows…


Global equities have been selling off hard on Thursday, with European bourses the worst performers as the Covid-19 related news gets progressively worse; with virus spread rates at record highs in a number of European countries, more and more draconian lockdown measures are being announced. Germany warned that the nation is facing a very broad second wave, which it looks likely to lose control of imminently, whilst France recently imposed a curfew in the Paris region and, in the UK, London has been designated tier 2 status in the recently announced “traffic-light” system.


As such, the Stoxx 600 closed down roughly 2.5%, with US equities trading with similarly steep losses. Losses across the Atlantic are seemingly being worsened by continued deadlock in negotiations over fiscal stimulus between the Republicans and Democrats, with the impasse increasingly looking to be the fault of the US House Speaker Nancy Pelosi, who is being accused of not wanting to “hand Trump a win” in the form of stimulus checks with his name on it going out to Americans and the stock market trading higher this side of election day, even if that does mean people who desperately need government support have to suffer in the interim.


Amid the risk off market tone, safe haven currencies USD, CHF and JPY are the best performers, while NZD, AUD and NOK are the worst performers. Of these three, NOK is fairing worst, given it has the highest sensitivity to equities out of the G10, but AUD is in second place and is underperforming its antipodean counterpart NZD by a reasonable margin.

Here’s why…



2) Dovish RBA Governor Debelle remarks…


AUD was initially unreactive to the prepared statement by RBA Governor Lowe, released at 2245BST/1745EDT last night, which failed to give away any new information regarding the RBA’s potential next move; as a reminder, the RBA’s tone was much more dovish in the early October meeting, leading many in the market to predict more easing in November.


However, during his post speech Q&A, Lowe said that 15bps cut to interest rates to 0.1% was a possibility, prompting a number of fresh calls from a number financial institutions for further easing in November. Goldman Sachs, CBA, RBC, and Nomura now all expect cuts to the interest rate at the next RBA meeting.


We also had Australian Employment data for September last night, which showed a slightly less bad than expected deterioration in the Australian labour market, with job losses of just -29.5k (exp. -35.0k) and the unemployment rate rising to just 6.9% (exp. 7.1%) from 6.8% in August. AUD was more focused on dovish RBA commentary however, and the data did little to help AUD’s cause. 

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