Aussie Slumps to 6-Month Lows, Greenback Mixed, Risk-Off

Michael Moran, Senior Currency Strategist at ACY

31.01.2022 03:00 pm

#stocks

Summary: Risk appetite remained shaky despite a late rally in US equity markets on Friday. The AUD/JPY cross pair, the main FX barometer for risk slumped to a 6-week low at 80.60 from its 81.1 open Friday. The Australian Dollar (AUD/USD) tumbled 0.9%, breaking through the 0.70 cent support level to 0.6992 in late New York (0.7030). New Zealand’s Kiwi, which trades closely to the Aussie, fell to 0.6545 (0.6577). Against the haven sought Japanese Yen, the US Dollar edged lower to 115.20 (115.30). The Dollar Index (USD/DXY), a popular measure of the Greenback’s value against a basket of 6 major currencies edged higher to 97.20 (97.17). Sterling (GBP/USD) settled around the 1.3400 level, little-changed from Thursday as political jitters eased in the UK over the weekend. The Euro maintained its weak tone against the Greenback and other rivals, settling around 1.1150 (1.1147 Friday morning). Against the Asian and Emerging Market currencies, the US Dollar ended mixed. Southeast Asian currencies led by Singapore and Thailand both kept the Greenback at bay. Higher inflation reads in both countries are fuelling bets for tightening from these regional central banks. The USD/SGD pair (US Dollar-Singapore Dollar) grinded up to 1.3555 (1.3527) while USD/CNH (US Dollar-Offshore Chinese Yuan) settled at 6.3710 from 6.3690. USD/THB (Dollar-Thai Baht) rallied to 33.45 at the New York close from 33.30 Friday morning in Asia.
Wall Street stocks rebounded from an early sell-off to finish in the green. Friday, month-end factors led to choppy trade in equities with investors looking ahead to this week’s Jobs report. The DOW climbed to 34,710 (34,057) while the S&P 500 gained 1.7% to 4,430 (4,310).
Global bond rates eased. The US 10-year treasury yield settled at 1.77% from 1.81%. Germany’s 10-year Bund Yield closed at -0.05% from -0.06%. UK 10-year Gilt rate settled at 1.24% (1.23%).
Data released Friday saw Tokyo’s Core CPI in January dip to 0.2% against forecasts at 0.3%. Germany’s Import Prices eased to 0.1%, versus expectations of +2%. Switzerland’s KOF Economic Barometer rose to 107.8 from a previous 107.0, beating estimates at 106.3. US December Personal Income eased to 0.3% from 0.4%, and lower than forecasts at 0.5%. US Personal Spending was unchanged at 0.6% from a previous 0.6%, matching forecasts at 0.6%. The US University of Michigan Consumer Sentiment for January fell to 67.2 from 70.6, and expectations of 68.7. Over the weekend Chinese data released saw both manufacturing and services sentiment indices slip. China’s Manufacturing PMI fell to 50.1 in January from December’s 50.3. Non-manufacturing PMI was also lower, to 51.1 from 52.7, but matching estimates.

AUD/USD – the Australian Dollar slumped against the Greenback to finish at 0.6992, breaking under the 0.7000 support level. On Friday, the AUD/USD pair opened in Asia at 0.7030. The Aussie was also lower against other FX, mainly the JPY. AUD/JPY tumbled 1.1% to 80.57 from 81.07 Friday.
EUR/USD – the shared currency stayed soft against the Greenback, finishing little-changed at 1.1150 (1.1145 Friday). Overnight low traded for the Euro against the US Dollar was at 1.1121. Germany’s Flash Q4 GDP slumped to -0.7%, worse than estimates at -0.3%.
USD/JPY – against the haven sought Japanese Yen, the Dollar finished lower to 115.20 from 115.30 on Friday. Risk aversion favoured the Yen against the Greenback and other Risk and Emerging Market currencies. Overnight low traded for USD/JPY was at 115.08.
GBP/USD – Sterling managed to maintain its levels around the 1.3400 level, closing in New York at 1.3395/05. Overnight, the GBP/USD pair slid to a low at 1.3365 before rebounding in late trade. Traders closed their short GBP/USD bets ahead of this week’s Bank of England policy meeting (Thursday, 3 Feb).

On the Lookout: As we end the first month of 2022 and into February, this week’s economic calendar picks up with the US Employment report the highlight on Friday. A few central banks hold their first interest rate policy meetings for 2022. The Reserve Bank of Australia (Tuesday, 1 Feb) and the Bank of England and European Central Bank (3 Feb) meet this week. The Bank of England is expected to hike its Official Bank rate to 0.50% from its current 0.25%. Markets expect Australia’s RBA to keep its Official Cash rate unchanged at 0.10% when it meets tomorrow. The European Central Bank is also expected to keep its Main Refinancing Rate unchanged at 0.00%.
Today’s data kicks off with Japan’s Industrial Production for December (m/m f/c -0.5% to -0.8% from previous 7%; y/y f/c 9.7% from 5.1% - ACY Finlogix). These are big differences and traders should look at any discrepancies and revisions. Japan also releases its December Retail Trade report (m/m f/c 1.1% from 1.2%; y/y f/c2.7% from 1.9%). Australia follows next with its Private Sector Credit (m/m f/c 0.7% from 0.9%). Japan reports its December Construction Orders (y/y f/c 10.1% from 11.6%) and Housing Starts (y/y 7.1% from 3.7%). European data sees Spanish CPI for January (m/m f/c 0.2% from 1.2%; y/y f/c 6.7% from 6.5%). The Eurozone releases its Q4 GDP (q/q f/c 0.3% from 0.2%; y/y f/c 4.7% from 3.9%). Germany follows next with its January CPI (m/m f/c -0.3% from previous 0.5%; y/y f/c 4.3% from 5.3%). The US rounds up today’s data releases with its Chicago January PMI (f/c 62.5 from 631.) and Dallas Fed Manufacturing PMI (f/c 9.9 from 8.1).

Trading Perspective: The slowing of China’s economy after weekend release saw weaker than expected January Manufacturing and Non-Manufacturing Activity will keep markets in risk-off mode today. Risk currencies led by the Australian and New Zealand Dollar are in danger of further deterioration while the haven associated Japanese Yen and Swiss Franc will outperform. Expect the Greenback to continue mixed against the Asian and Emerging Market currencies. Economic data released today (see above) will also affect trading. Expect more volatile trade ahead.

AUD/USD – slip-sliding away, the Aussie remains heavy after the break of the 0.70 cent support level. As our ACY chief economist Clifford Bennett correctly predicted a few weeks ago, its going to be a sell Australia story. He was spot on with his direction. Traders however will be looking to what’s going to occur today, the next 50 to 100 pips from here. Overnight low traded was at 0.6967. Immediate support for today lies at 0.6965 followed by 0.6935 and 0.6905. On the topside, immediate resistance lies at 0.7005, 0.7045 and 0.7085. Look for a choppy session today with the likely range between 0.6970-0.7070. Just trade the range shag today, you’ll be fine.
USD/JPY – The Greenback slid against the haven sought Yen finishing at 115.20 at the New York close from 115.30 Friday morning. Haven flows poured into the Japanese currency which outperformed the majors. The USD/JPY traded to an overnight low at 115.08. For today, immediate support can be found at 115.05 followed by 114.85. Immediate resistance lies at 115.45 and 115.75. Look to trade a likely range today of 115. 05-115.75.
EUR/USD – the shared currency continued its slow grind lower against the US Dollar. Overnight the Euro traded to a low at 1.1121. Immediate support for today lies at 1.1120 followed by 1.1090 and then 1.1060. On the topside, immediate resistance is found at 1.1175 followed by 1.1205. Expect the EUR/USD pair to trade heavy today with a likely range between 1.1110 to 1.1180. A break of 1.1100 opens the way to 1.1000. Sell rallies.
GBP/USD – Sterling held its own against the Greenback, closing little changed at 1.3397 from 1.3400 yesterday. Overnight the GBP/USD pair traded to a high at 1.3433. Immediate resistance today lies at 1.3430 followed by 1.3460. Immediate support can be found at 1.3370 (overnight low 1.3365) followed by 1.3340. Look for the British Pound to trade a likely range today of 1.3360 to 1.3420. Prefer to sell rallies.

Have a good trading week ahead all, happy Monday.

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