The Federal Reserve’s comments overnight have plunged the markets back into risk aversion and the clear loser is the commodity-driven AUD. We have seen a 1.7% drop in the value of the AUD in the last 24 hours, breaking through a key 6-week-old support level, indicating that further losses may be on the cards. The AUD is expected to end the week on a low as there is little data to support the risk-sensitive currency.
It looks like demand is back for the safe-haven USD, and following Fed Chairman Powell’s comments at the FOMC meeting the market has fled back to the Greenback. The Fed left interest rates unchanged at near zero and doubled down on its commitment to buy large quantities of bonds until the economy recovers. The dovish approach sent shivers down the spines of investors who began selling risk-sensitive currencies and buying back into the USD.
It has been another troubled week for the falling AUD, and despite better-than-expected inflation data on Wednesday, the Aussie has failed to climb against the NZD. The risk-averse market has taken its toll on the AUD, which has equated to a 1% slide against the NZD this week and, as we move into the new month, traders will begin to unwind their position which could exacerbate the move lower.
In the last 48 hours, the British government has extended the lockdown to “at least March 8th” in the wake of the UK passing 100,000 COVID deaths. Despite the bad news stacking up in the UK, the GBP has performed well as the markets are optimistic about the vaccination roll out, with over 7 million people already receiving the first dose. The short selling of the AUD this week has left the exchange rate sitting at the lowest level since December 2020.
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