Overnight, the AUD was absolutely hammered, as capitulation trading kicked in and global equity markets experienced their biggest falls since December 2008.
It seems all the fear and anxiety over the spreading of the European debt crisis to the larger nations of Italy and Spain, along with the dismal structural state of the US economy, collided last night; the result being a global equities rout. Predictably, there was a big aversion to risk and the AUD felt it hard. Having ended yesterday’s session around the 1.0655 level, the AUD drifted steadily over the course of the European and US sessions to close at 1.0464. Upon reopening for Asian trade, the AUD slid further to a low of 1.0425, before rebounding slightly to current levels within the 1.0460 range.
Over the near term, the AUD looks set to continue to be the ultimate barometer of risk sentiment. With ’risk’ likely to be absent for some time, the AUD could come under further selling pressure, particularly if any emergency rate cuts are invoked by the RBA to shore up confidence.