Forex Market: AUD/USD trades near a fresh 22-month trough on global growth concerns

AUD/USD plunged to a fresh 22-month low on Tuesday, dragged down by investor concerns over slowing global economic growth.

Global equity markets took a hit on Monday, with a sell-off led by mega-cap growth stocks sending NASDAQ down over 4%. Asian equities were also in the red on Tuesday, with Nikkei 225 down 0.58%, Hang Seng down 1.60% and Australia’s S&P ASX down 0.99%.

“The Aussie is primarily a risk sensitive currency and in recent days the market has become more concerned about the global growth outlook, with risk aversion also seen in the big declines in equity markets around the globe. Against that backdrop its not surprising to see it struggling,” Rodrigo Catril, a currency strategist at NAB, was quoted as saying by Reuters.

The Dollar Index was 0.09% lower at 103.662 on Tuesday, after surging to a fresh 20-year high of 104.19 overnight.

“We don’t see the small rebound that we’ve seen in the past couple of hours as encouraging. It’s really more markets taking a breather from the big declines in recent days, than a big change in fundamentals suggesting we are out of the woods,” NAB’s Catril noted.

Yesterday Atlanta Fed President Raphael Bostic said he expected the central bank to deliver 2 or 3 more 0.5% interest rate hikes, but nothing larger than that, which led to a pause in US Treasury yields’ surge.

“I would say that (a 75-basis-point rate hike) is a low probability outcome given what I expect will happen in the economy over the next three to four months,” Fed’s Bostic said in an interview with Reuters.

“A number of supply chain challenges that have really been just persistent through the pandemic are starting to show signs of easing,” he added.

As of 8:36 GMT on Tuesday AUD/USD was edging up 0.10% to trade at 0.6956. Earlier on Tuesday the major Forex pair went down as low as 0.6911, which has been its weakest level since July 2nd 2020 (0.6901).

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 29.3 basis points (0.293%) as of 8:15 GMT on Tuesday, up from 25.6 basis points on May 9th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6988
R1 – 0.7032
R2 – 0.7114
R3 – 0.7157
R4 – 0.7201

S1 – 0.6906
S2 – 0.6863
S3 – 0.6780
S4 – 0.6698