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AUD shunned as traders remain defensive

AUD shunned as traders remain defensive

By Tim Waterer (Senior FX Dealer, CMC Markets)

The Australian dollar has certainly not enjoyed the greatest of weeks, having given up over three cents of ground against the USD since Monday. Stubbornly high European Yield prices as well as escalating contagion fears have sent high yielding currencies down a slippery slope this week, with the USD being the main beneficiary of the outflow of funds from risk into defensive assets.

Having slipped below parity on the wave of global equity selling of late, the AUD is all of a sudden looking very mortal again after being a darling of the currency market for much of 2011. The softer interest rate outlook and potential for further erosion of the AUD’s yield advantage over the majors is also weighing on the currency. I would expect however that when global equity markets find their feet again that the AUD will again resume its place above parity.

This morning the AUDUSD rate has dipped to 0.9974 courtesy of the predictably weak start across equity markets, with traders again fearful of progress on the Eurozone debt front stalling. Positive news or events this week from any part of the globe have been few and far between which has opened the gates for the latest instalment of the ‘doom and gloom’ trading mindset.

For the rest of the local session, look for the AUD to trade in the 0.9965 -1.0020 range.  Support on the downside looks to be at 0.9945 and this could be tested if we see 'more of the same' trading conditions offshore again tonight.

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