AUD Retreats As Equities Slump

AUD/USD reached a post Asia close high of just above 0.6960 early in London trading, but from there we steadily drifted lower to the low 0.6900 region, as risk aversion rose. We currently track around 0.6905.

• Weaker US equities weighed on risk appetite, while the VIX rebounded above 28%. US data was weaker, particularly across consumer sentiment and the Richmond Fed survey, raising growth/recession fears.
• US yields edged lower, although more so at the back end. The AU-US 2yr spread remains around recent lows of -33bps.
• Commodities were supportive, iron ore pushed back up to $125/tonne, buoyed by China's easing of covid-related travel quarantine restrictions announced late yesterday. This announcement also coincided with highs in AUD/USD in early London trading
• Oil continued to track higher, back to $118/bbl in terms of Brent crude. Base metals also rose by 0.4%, although Copper couldn't build on gains above $380.
• Today, the data focus is on retail sales. The market expects a +0.4% rise for May, versus +0.9% previously. There is a wide range of estimates, +1.0% to -1.0%. As we noted yesterday, consumer sentiment has fallen sharply in recent months, which may pose a downside risk to spending.