Risk-off Sentiment Amid Geopolitical Tensions
02 August 2022
Global equities slid on Tuesday, boosting demand for the US dollar as investors remain on edge due to mounting geopolitical concerns between China and the US.
Tensions in Taiwan continue
"According to what I know, Beijing has prepared a number of responses, including military strikes, in reaction to Pelosi's potential journey to Taiwan," tweeted Hu Xijin, a commentator at the very prominent Chinese official media outlet Global Times, on Tuesday.
This comes as diplomatic tensions rise in advance of Speaker of the US House of Representatives Nancy Pelosi's anticipated Tuesday visit to Taiwan.
RBA hikes rates, AUD falls
Earlier today, the RBA announced the fourth rate increase in 2022, of 50 basis points (bps), in line with market forecasts, raising the benchmark rate to 1.85%. However, the following statement was not hawkish enough saying "The central bank is not on the pre-set path in normalizing rates," seemed to spook investors, leading to a sharp decline in the Australian dollar.
During the London session, the AUDUSD pair was down more than 1%, dropping to 0.6940.
On Monday, the US July ISM Manufacturing PMI dropped from 53 in June to 52.8, which was a smaller drop than was predicted. Although a steep decline in prices paid suggested that inflationary pressures are receding, the ISM reported that new orders also declined in accordance with rising recessionary concerns.
Tuesday's decline in oil prices followed that of the previous session due to concerns that a worldwide industrial slump may hurt demand before a gathering of the top producers to determine future supply. At the time of writing, WTI oil traded near 93 USD, falling below the 200-day average yesterday.
On Wednesday, the Organization of Petroleum Exporting Countries and Allies (OPEC+) will convene to talk about the future of the oil supply.