A$ Slumps As Equities Plunge

AUD/USD slumped back below 0.6900 late in the NY session on Friday. We are tracking lower this morning, sub 0.6880, a further -0.30 down from closing levels last week. The main catalyst for the plunging A$ was sharp risk aversion in the equity space, as US Fed Chair Powell delivered a hawkish speech at Jackson Hole, with higher rates for longer needed to curb inflation. After the NZD, the currency was the weakest performer in the G10 FX space at the end of last week.

• AUD/USD is eyeing lows from early last week (0.6855/0.6860). Beyond that is the low 0.6800/high 0.6700 region. Note 0.6789 represents the 76.4% retracement of the July 14 to August 11 up leg.
• The VIX index surged back above 25.00% on Friday, highs back to mid July as equity sentiment faltered. The early tone to US futures (off close to 1% this morning), is likely to keep A$ sentiment on the backfoot.
• AUD/JPY is back sub 95.00 (last 94.75), but AUD/EUR has seen a bigger correction, down to 0.6900, versus previous highs close to 0.7000. ECB rhetoric from Jackson Hole was generally hawkish.
• Despite Powell's hawkish backdrop, US yields were only modestly higher, the 2yr up towards 3.40%, +3bps for Friday's session in volatile trade. We are close to June cyclical highs though.
• The domestic data calendar today is focused on the July retail sales print. The market forecast is for a +0.3% print, versus +0.2% in June.