Australian dollar coin
A one Australian dollar coin is seen in this picture illustration taken in Sydney, Australia, July 29, 2015. Reuters/David Gray

Bell FX Currency Outlook: The Australian Dollar has tumbled to a seven-year low as risk sentiment soured in the wake of plunging oil prices and Chinese stocks.

Australia: The AUD again lost ground on Friday night, with the low in the 0.6820s, down from a high Friday morning around 70 cents. The currency is now down over 6% for 2016 and currently trading at levels not seen since March 2009. China’s equity market started the risk-off sentiment for global markets after Shanghai closed down 3.55%. Most European indices were off a little over 2%, while the S&P500 finished -
2.16%, bringing the YTD loss to 8% from 6% the previous Friday. Also weighing on the AUD (and other commodity currencies) was further weakness in oil prices as news emerged that sanctions on Iran were lifted
after the International Atomic Energy Agency determined that the country had curbed its ability to develop an atomic weapon. Iran is expected to boost exports to 0.5m bbl/day. Crude prices consolidated under USD30/bbl. Motor vehicle sales and TD Securities inflation measure are released in Australia today, while China’s house price data is also slated for release. Looking ahead to the rest of the week, only Wednesday’s
consumer sentiment data is of any note in Australia, while offshore there is China GDP on Tuesday (accompanied by the usual raft of monthly activity readings – retail sales, industrial production and fixed asset investment).

Majors: The EUR and JPY were both up for the session (0.5% and 0.9% respectively) as investors flocked to the safe haven currencies. Currencies of commodity producing EM countries were hardest hit with RUB, MXN and ZAR all off more than 2%. The NZD made back some of the ground recently lost to the AUD but is now showing some signs of ‘catch-up’ with Friday’s AUD and CAD falls. The USD losses were compounded but some poor data; core retail sales, industrial production and the Empire manufacturing survey all missed expectations and only the University of Michigan’s consumer sentiment index beat forecasts (but since this is so sensitive to equity market performance, current strength is surely fleeting). Despite US equities posting their worst two week start to the year on record and WTI oil prices falling below USD30/bbl, FOMC Vice Chair Dudley and San Francisco Fed President Williams downplayed the impact of recent events on the US economy, with growth expected to be around 2% this year and increases in US rates will still be gradual and data dependent.

Economic Calendar 18 JAN

  • AU New Motor Vehicle Sales YoY Dec
  • AU TD Securities Inflation Dec

BellFx

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