AUD/USD bounced off a one-month low, recorded earlier on Tuesday, as market sellers seemed to have shifted their focus to the Euro amid a deepening energy crisis in Europe.
The common currency has been pressured by skyrocketing energy prices across Europe, which is fueling inflation and is forcing central banks to raise interest rates even at the risk of recession.
In comparison, Australia is a net exporter of energy and high liquefied natural gas prices have contributed to a series of record trade surpluses in 2022.
Still, higher energy costs have driven inflation in Australia as well and have dragged on domestic consumers.
The S&P Global Australia Services PMI dropped to a preliminary reading of 49.6 in August from a final 50.9 in July, while indicating contraction for the first time since January. Inflationary pressures, recent interest rate hikes as well as weakening consumer confidence all contributed to the decline in business activity.
“The run of recent economic data suggests that the steam is coming out of the Aussie economy as rising interest rates and skyrocketing inflation bite,” Ryan Felsman, a senior economist at CommSec, was quoted as saying by Reuters.
“Home prices are falling sharply, job vacancies appear to have peaked, jobs were cut in July, wage growth remains tepid, retail spending has slowed and now services sector activity is contracting.”
Markets are now pricing a chance of between 65% and 80% of a 50 basis point rate hike by the Reserve Bank of Australia in September, while rates are expected to peak at around 3.85%.
Meanwhile, safe haven flows kept the US Dollar strong.
As of 9:13 GMT on Tuesday AUD/USD was edging up 0.12% to trade at 0.6883. Earlier on Tuesday the major Forex pair went down as low as 0.6856, which has been its weakest level since July 19th (0.6803).
Bond Yield Spread
The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -13.5 basis points (-0.135%) as of 8:15 GMT on Tuesday, down from -13.4 basis points on August 22nd.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 0.6889
R1 – 0.6915
R2 – 0.6956
R3 – 0.6982
R4 – 0.7009
S1 – 0.6848
S2 – 0.6822
S3 – 0.6781
S4 – 0.6741