The Australian dollar has posted sharp losses on Friday following the stunning results of the Brexit referendum, with Britain voting to leave the European Union. AUD/USD fell as low as 0.7296 earlier on Friday, but has recovered and is currently trading above the 0.74 line. On the release front, durable goods reports were soft. Core Durable Goods Orders declined 0.3%, while Durable Goods Orders was dismal, coming in at -2.2%. Later in the day, we’ll get a look at Revised UoM Consumer Sentiment. The markets are expecting a strong reading of 94.2 points. There are no Australian releases on Friday.
Stunning. Monumental. A political earthquake. There are shock waves in the UK and right across Europe on Friday, following a stunning decision by the UK to exit the European Union. Polls leading up the race had showed a very tight race, while the financial markets expecting the Remain camp to win. This was evidenced by the British pound moving higher throughout the week. At the end, the Leave camp won the day, garnering 52% of the vote. The markets have reacted sharply on Friday, with the pound plunging to 30-year lows and the Australian dollar falling as much as 3.7% before recovering some ground. The markets were volatile throughout Thursday night, and we could see further volatility in the currency and financial markets during the Friday session. Fallout from the referendum was swift, as British Prime Minister David Cameron announced his intention to resign in the next few months. It’s hard to gauge the extent of the economic fallout so soon after the vote, but there’s no doubt that the UK and the European Union are entering into uncharted territory and a period of instability and uncertainty. The dramatic and unexpected decision to leave the EU will undoubtedly have unpredictable economic and political consequences, perhaps for years to come. The UK economy of GBP 2.9 trillion is the fifth largest in the world and number two in Europe, after Germany. Will the EU survive Brexit? There is clearly shock and dismay across the European Union that the club is losing such an important member, and the vote to leave is likely to boost euro-skeptics in other member states, such as the Netherlands and Denmark. As for the financial markets, safe-risk assets such as gold, are the big winners immediately after the vote. Conversely, risk assets like the Australian dollar have lost ground on Friday, as the Aussie struggles to remain above the 0.74 level.
Overshadowed by the Brexit referendum campaign was testimony from Janet Yellen before Congress earlier this week. Yellen was cautious and tentative, and failed to provide any hints about the timing of a rate hike. She acknowledged that the US economy could be stronger, saying that “[c]onsiderable uncertainty about the economic outlook remains”. Yellen said that she’s “hopeful that we will see a pickup in growth”, but skeptics might respond that the markets want to see action from the Fed and not just hope. The Fed has clearly been out of sync with the markets, as underscored by the Fed’s statements back in December that it might raise rates in 2016 up to four times. Meanwhile, here we are in June, and there’s no clear indication that the Fed will raise rates at all this year. In her testimony, Yellen said she does not expect the US economy to enter a recession, but if such a scenario did occur, the US would not follow Japan and Europe and adopt negative interest rates. On a more positive note, Yellen said that weak oil prices, low interest rates and stronger wage growth should support consumer spending.
Friday (June 24)
- 8:30 US Core Durable Goods Orders. Estimate 0.1%. Actual 0.2%
- 8:30 US Durable Goods Orders. Estimate -0.5%. Actual -2.2%
- 10:00 US Revised UoM Consumer Sentiment. Estimate 94.2
- 10:00 US Revised UoM Inflation Expectations
*Key releases are highlighted in bold
*All release times are EDT
AUD/USD for Friday, June 24, 2016
AUD/USD June 24 at 9:30 EDT
Open: 0.7541 Low: 0.7296 High: 0.7581 Close: 0.7440
- AUD/USD posted sharp gains in the Asian session but reversed directions in European trade and recovered ground. The pair is steady in North American trade
- 0.7472 remains fluid and has switched to a resistance role. It is a weak line
- 0.7339 is providing support
- Current range: 0.7339 to 0.7472
Further levels in both directions:
- Below: 0.7339, 0.7251 and 0.7160
- Above: 0.7472, 0.7612, 0.7739 and 0.7835
OANDA’s Open Positions Ratio
AUD/USD ratio is showing gains in long positions on Friday. This is consistent with the sharp losses by AUD/USD, which has led to the covering of short positions. Long positions have a majority (59%), indicative of trader bias towards AUD/USD reversing directions and gaining ground.
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