Home Daily Commentaries Aussie dollar retreats in face of China headwinds

Aussie dollar retreats in face of China headwinds

Daily Currency Update

The Australian dollar reversal extended through trade on Tuesday as Monday's risk-off tone continued amid weaker China sentiment and softer yuan. The AUD opened marginally above US$0.6850 but fell toward US$0.68 following the release of the RBA's June meeting minutes. The account of the last policy meeting was somewhat dovish with markets zeroing in on comments surrounding the 25-point rate hike where policy makers suggested the decision was "finely balanced". The AUD then extended the days downturn, breaking below US$0.6780 amid weaker China sentiment. Chinese banks lower 1 and 5-year loan rates, passing on last week's People's Bank of China rate reductions, yet market participants were hoping for more definitive stimulatory action and the USD pushed toward fresh highs above ¥7.18. The weaker yuan spilled into NZD and AUD values, forcing the AUD toward intraday lows just north of US$0.6750.
Having found support the AUD opens at US$0.6785 as our attentions turn to UK CPI data and commentary from Fed Chair Jerome Powell.

Key Movers

The risk-off session and lower global rates helped elevate the USD and Japanese yen through trade on Tuesday with the latter enjoying strong gains against the NZD and AUD while pushing back against the USD. The yen forced the USD back below ¥142 toward intraday lows at ¥141.20. While underperforming against the yen the USD continued recovering last week's losses, advancing against both the euro and the pound. Stronger than anticipated US housing starts helped elevate the USD while dovish commentary from European Central Bank policy makers prompted a correction in European yields. Having given up US$1.0950 the euro slipped below US$1.09 marking intraday lows at US$1.0895 before finding support. The GBP gave up US$1.28 and US$1.2750, sliding toward intraday lows at US$1.2720.
Our attentions turn now to UK CPI data. We expect headline CPI to remain elevated near 8.4-8.5% with core CPI steady at 6.8%. Elevated CPI should further elevate UK gilt yields and add near-term support for the GBP, however, extended inflation and rising interest rate expectations will eventually weigh heavily on the growth outlook and GBP could turn negative as market focus turns to recession.

Expected Ranges

  • AUD/USD: 0.6680 - 0.6880 ▼
  • AUD/EUR: 0.6180 - 0.6280 ▼
  • GBP/AUD: 1.8580 - 1.8880 ▲
  • AUD/NZD: 1.0950 - 1.1050 ▼
  • AUD/CAD: 0.8920 - 0.9050 ▼