The Aussie took it on the chin from numerous angles overnight. The weaker Chinese trade data and the accompanying move lower in commodity prices have led to USD buying against commodity currencies. The Aussie, already reeling from the RBA inflation downgrade, was particularly vulnerable to the correction lower in both Iron Ore and Copper prices,( Iron Ore fell 5.8%, Copper fell 2.3%) with the currency testing the 73 support level on several occasions.
However, whats’s becoming clearer to traders as we move deeper into Q2 is that the stimulus effects in China are showing signs of fading ,and with a growing consensus that further aggressive policy easing is unlikely from Mainland , we could be in for some dark days in the commodity and emerging markets space. Remember much of the global emerging markets recovery this year had been dictated by reduced fears of a hard landing in China and the subsequent rally in commodity prices.
Adding more fuel to the fires is lower oil prices after traders reduced long positions fearing the new Saudi cabinet shuffle could result in increased Global OIL supply. Risk off tone has been permeating the market for the past week and falling oil prices overnight should increase investor pessimism.
There’s a growing preference to be short risk currencies in this environment, particularly the Aussie dollar given its susceptibility to deteriorating hard commodity prices.