Australian one dollar coins
A handful of Australian one dollar coins is shown in Sydney, February 18, 2004. Reuters/Tim Wimborne

Bell FX Currency Outlook: The Australian Dollar broke to fresh lows once again overnight as volatility in equity markets dominated the currency market and risk aversion drove ‘risky’currencies down sharply.

Australia: The term “meltdown” has been used this morning to describe price action in equities overnight. The extreme moves are characteristic of serious unwinding in an over-leveraged market. It started in China last week, and like only contagion knows, has spread since then to Western financial markets. Commodity prices plunged, led by sharp falls for oil prices, with the CRB index hitting a new 13 year low. In the near term, fundamentals will remain sidelined and the AUD will trade at the whim of equity markets and daily ranges may return to 200-300 points as they were in the immediate post GFC period. Then there is the issue of “liquidity”. It (liquidity) went missingovernight with extraordinary ranges occuring. The NZD and AUD traded inlarge ranges, but the story was repeated across all currencies. Domestic developments are being dwarfed by events offshore, with markets characterised by a renewed bout of risk aversion, extreme volatility and large trading ranges. Odds for a September Fed hike have been pushedback to just 22%, from close to 50% odds two weeks ago. The ANZ RoyMorgan Weekly Consumer Confidence will be released at 9:30am AEST but the real action is more likely offshore as we wait for the opening of the Chinese stock market in a few hours’ time. As for the AUD, some consolidation towards 0.7200 seems possible.

Majors: Core currencies like EUR, JPY and GBP all posted solid gains, while the USD gained against everything else. Please note that due to these conditions, overnight currency ranges printed are best estimates. There were initial sharp falls in US equity indices, which were partly unwound over the session, before a fresh wave of selling, with the DJIA and S&P 500 closingdown 3.6% and 3.9% overnight. Brent slipped below USD43/bbl, the lowest level since 2008. The sharp decline was driven by concerns around slowing Chinese demand just as OPEC and the US expand a global glut. Hedge funds also reduced their net-long position in WTI to a five-year lowlast week. Chna opening is the next milestone in this massive ride.

Economic Calendar 25 AUG

  • AU ANZ Roy Morgan Weekly Consumer Confidence
  • CH Conference Board China July Leading Economic Index
  • GE GDP (final) Q2
  • US Condumer Confidence Aug

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