Within the G3 currencies, the action remains as moribund as ever as EURUSD failed to make waves with a break of the 1.1000 level this week and the FOMC didn’t spark any isolated USD strength. But the general risk off starting overnight in the Asian session has certainly driven a wave of further risk off in the traditionally risk-correlated G10 small currencies, particularly the AUD as we discuss below, as well as general weakness across much of EM. We watch for the risk of a further intensification of risk off after this latest bout, suggesting that many markets look a bit complacent here in pricing how long this situation may take to get sorted out.
EURAUD – AUD under press within G10
AUD is the single G10 currency most at risk from its exposure to China on the fear that a prolonged bout of dealing with the coronavirus outbreak will extend the suspension of economic activity and lead to a further reduction in collapsing prices for key commodity exports like iron ore and coking coal, Australia’s chief China-bound exports. AUDUSD is not the only pair to look at (but is worth watching as the key 0.6700 area approaches as we discussed in today’s FX Update), but other AUD pairs show the Aussie very much on the defensive, including EURAUD, which is ripping sharply to new highs on the latest developments – worth tracking all AUD pairs for isolated AUD weakness.