Global growth concerns have been reignited and will play a crucial role in determining the extent of AUD/USD weakness in coming weeks. South Korea's shock Q1 GDP contraction nL4N1PJ1MW, a disappointing German Ifo nS8N1XY01D, and plunge in 3M shares on poor earnings tied to weak global demand nL3N227392 sent some key risk assets lower after a quarter of strong gains. Global investors had begun this week cheered by strong China data coinciding with better-than-expected company earnings and solid data out of the U.S. But the flip side of the strong Chinese data is the perception Beijing will curtail efforts to prop up the economy with stimulus nL3N22712Z. The run of relatively strong U.S. data has pushed the USD to multi-year highs, which may create headwinds for commodities, emerging markets and U.S. exporters.
Key data over the next few weeks will determine whether the global economy is at an inflection point, or the return of global growth concerns is overblown, as was the case in December.
The AUD/USD will struggle in either case due to dovish RBA expectations and a broadly stronger USD, but if global growth stumbles, the AUD/USD is likely to re-test the flash crash low at 0.6715.