Aussie dollar at the mercy of global risk sentiment

21 June 2016: SYDNEY -- The Australian dollar looks set to remain glued to broader global risk sentiment, but looking confident at the open this morning.

“We saw the Aussie getting some support over the weekend on the back of oil price recovery,” said Stephen Innes, senior trader at FX and CFD firm OANDA Australia and Asia Pacific.

He added, “The overall risk sentiment (in the markets) also bounced after the temporary suspension of referendum campaigning in the UK.”

Innes also pointed out that there was broader based selling on the US dollar after the senseless killing of UK MP Jo Cox caused an adjustment in risk-off positioning that was driving markets earlier last week.

Brexit to dominate, but watch out for the RBA too.

With Brexit dominating the global market sentiment this week, Innes said “In addition to the gyrations in risk sentiment around Brexit, local traders will still keep an eye on the Reserve Bank of Australia (RBA) meeting minutes due out Tuesday,”

“The market will be looking for any guidance that supports another rate cut after the less-dovish tone of their post-meeting statement.

But he added, “ I do not expect the RBA minutes to be a major pivot as traders are entirely focused on and preparing for the double-edged outcome of the  UK referendum which will unquestionably be the biggest driver for overall risk appetite for months to come,”

“The Brexit build up has been an extremely contentious and divisive affair and it's difficult to imagine investor risk sentiment snapping back up one way or the other in Europe and potentially a grim prospect for risk-sensitive currencies like the Aussie dollar,” Innes said.

Massive market reaction to post Brexit decision

He added that regardless of the uncertainty going into Brexit, there will be a massive market reaction nonetheless.

According to Innes, he sees two possible things traders should be on the lookout early in the week. 

“One, a mad dash to cover speculative Brexit positioning as we near the events. And two, possible Howitzer shots across the bow from central bankers expressing their readiness to stand in front of unwanted and excessive post Brexit currency moves,”

“I'm sure their massive currency war chests are standing ready.”

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