AUD tests two-month low in face of weak China data

Daily Currency Update

The Australian dollar tracked lower through trade on Tuesday amid a risk-off mood and softer than anticipated China trade data. Reports showed Chinese exports and imports fell faster than expected in June, further highlighting the slowdown in economic activity and raising fresh concerns surrounding the state of the post-COVID rebound. Domestic Chinese consumption has cratered while softness across, Europe, the US and the broader global economy has amplified a downturn in global demand weighing heavily on the Chinese economic engine. The yuan fell, allowing the USD to push back through ¥7.23. Yuan losses spilled over into AUD, driving the Aussie dollar back toward US$0.65, marking intraday lows at US$0.6497. Having found support near the two-month low, the AUD opens this morning at US$0.6530/40. Our attentions turn now to Chinese CPI data. We expect this latest inflation print will reinforce deflationary forces, with most analysts expecting a contraction in price pressures. Lead in data shows prices continue to fall, exacerbating consumption issues and highlighting the need for additional stimulus. We anticipate the AUD will struggle to mount any real recovery with key risk events and real headwinds dampening demand. Watch supports at US$0.65 as a key marker of trend and short-term direction.