AUD plummets after another Chinese data miss

Daily Currency Update

The Australian dollar was among the worst performers Tuesday, sliding back below US$0.64 amid a risk-off mood triggered by weaker-than-anticipated Chinese services data. China’s Caixin Services PMI report showed activity fell to its lowest level this year, highlighting concerns surrounding economic momentum and elevating calls for Chinese policy makers and officials to do more to stimulate a post-COVID rebound. The yuan weakened, again giving up ¥7.30 to the USD, triggering a sell-off across risk assets and asian currencies. The AUD, having slipped below US$0.64 marked lows at US$0.6358 before finding support. As if an afterthought the RBA policy announcement offered little. Markets had priced in “no hike” and with the RBA statement providing no new insights into future RBA policy moves markets continue to price future tightening, albeit marginal and around the edges with much of the work seemingly already done. There is a strong market consensus the RBA has reached or is very near the peak in this tightening cycle.
Our attention today turns to domestic GDP data. We expect a modest increase through Q2 which may lend some support to the AUD as we look ahead to key US ISM services data and a Bank of Canada policy announcement, while China sentiment remains key in driving the risk narrative. Another run-on risk could see the AUD test new 2023 lows and re-open the door for a break toward US$0.63/US$0.62.