AUD retains gains as markets buy into rumours China will amend Covid policies.
Tuesday 8 November, 2022
Daily Currency UpdateThe Australian dollar advanced through trade on Monday retaining gains enjoyed on the heels of rumours China is poised to amend its Covid-zero policy. Having tested a break above US$0.6470 on Friday the AUD shifted lower on open as markets digested weekend reports from key Chinese officials wherein they pushed back on any suggestion China was preparing to move away from its current Covid stance. The AUD gapped lower testing US$0.64 before risk appetite found renewed support. Despite officials’ vehement denials it seems markets are prepared to adopt an optimistic approach to China Covid Zero expectations, opting to buy the rumour if only to sell the fact in due course. The mere suggestion China will begin a broader re-opening in 2023 has offered enough hope to spur renewed demand across key commodities and risk assets. Having marked fresh intraday highs at US$0.6490 our attentions turn to commentary from Fed officials ahead of key inflation data and any further insight into a shifting Covid landscape in China.
Key MoversThe US dollar meet sustained selling pressure and is broadly weaker this morning as markets buy into rumours China is poised to amend its Covid Zero policy platform. Commodity currencies surged as key industrial metals enjoyed another day of renewed support while the GBP and Euro enjoyed modest gains. The British pound was the day's big mover, advancing 1%. There appears no obvious catalyst behind Sterling’s recovery outside of a simple correction following last week’s dovish Bank of England policy update and sharp downturn. US dollar weakness allowed the euro to extend back above parity, marking intraday highs at 1.0025. The question now, is this the beginning of a broader correction. A similar move was quashed last week after the Fed maintained its hawkish stance, but with renewed demand for risk and less hawkish reports spilling from a number of key Fed officials the US dollar faces another bout of selling pressure. With its yield curve aggressively inverted we are beginning to see signs the market is looking beyond near-term interest rate policy and toward a possible 2023 recession. Our attentions turn now to CPI inflation data Wednesday as a critical marker in governing direction through the week.
- AUD/USD: 0.6350 - 0.6530 ▲
- AUD/EUR: 0.6380 - 0.6520 ▼
- GBP/AUD: 1.7520 - 1.7920 ▲
- AUD/NZD: 1.0880 - 1.0980 ▼
- AUD/CAD: 0.8680 - 0.8820 ▲