During the middle stages of last week, the Aussie was the best performing currency, riding a wave of risk-on sentiment as Chinese equity markets and the Yuan marched higher.
Poised to once again establish a foothold above 0.7450, the tight range that had constricted AUDUSD price action for 6 weeks appeared about to break open as AUDUSD positioned itself to pop higher.
Then a Turkish meltdown occurred.
Worries over Turkey’s slide towards a full-blown financial crisis deepened dramatically on Friday as relations with the U.S. continued to sour. Years of pursuing economic growth via irrational and unsustainable spending policies have left the Turkish economy overloaded with mountains of foreign debt, extreme inflation and a currency that has now fallen over 40% against the USD this year.
Further deepening the crisis, Trump tweeted on Friday that he had authorised doubling tariffs – aluminium imports to 20% and 50% for steel, making the steel tariffs official via a presidential proclamation on Friday evening.
Not just a proxy for Chinese growth, but also for emerging markets stability – the Aussie dollar felt the full brunt of the turbulence, falling out of bed and below 73 US cents – the first time it fell to these levels since early 2017. So in just over 24 hours, AUDUSD went from looking like a weekly victory for the bulls and a break above the 6 week range to now potentially plunging back below 70 US cents in the coming weeks.