AUD in freefall as hopes pinned to Chinese intervention

Daily Currency Update

The Australian dollar is again starting the day on the back foot having marked new 2023 lows amid ongoing China turmoil and a lacklustre labour market print. Local employment data fell well short of expectations in July, giving the RBA little incentive to pivot away from its current policy stance. A contraction in employment growth and an uptick in the unemployment rates suggest a broader cooling of the labour markets, and when combined with Tuesday’s lacklustre wage price index report we can almost guarantee the RBA will leave rates on hold again in September. The AUD slid below US$0.64, extending toward US$0.6363, its lowest level since November last year. With local data offering little support to the embattled AUD, markets looked to consolidate the downturn amid rising concern surrounding the state of China’s economy. The USD/CNY pushed higher, marking 10-month highs as the Chinese yuan continues its rapid depreciation. With markets in freefall, a semblance of calm was found in a report Chinese authorities had told State owned banks to step in and intervene in the currency market, in a bid to control further volatility. With policy makers considering cutting foreign exchange reserve requirements, markets pared early losses moving the yuan off lows at 7.35 and back toward 7.31 overnight. The recovery in the yuan helped the AUD push off lows, powering back toward US$0.6450, before again facing selling pressure and sliding back toward US$0.64 ahead of Friday’s open.

Our attentions remain firmly affixed on China and yuan performance. Having broken US$0.65 and US$0.6450 there is little by way of technical supports preventing the AUD from sliding toward the October 2022 low of US$0.62. While intervention has offered some respite, we are keenly attuned to what new tools Chinese officials intend to employ in determining near-term value.