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Yuan depreciation and mounting selling pressures force AUD lower

AUD - Australian Dollar

The AUD shifted downward through trade on Thursday, drifting back toward the lower end of recent ranges as investors responded to mounting signals to sell down CNY and CNH holdings. Concerns surrounding the US/China trade war remain front and centre and the AUD’s close correlation with the fortunes of the worlds second largest economy prompted nervousness among AUD buyers. Having opened near resistance at 0.6790 the AUD touched intraday lows 0.6752 and appears reasonable well supported on moves toward this handle.

Attentions now turn to this weekend’s symposium of Central Banks in Jackson Hole, Wyoming. Expectations Federal Reserve President Jerome Powell will leave open the door to a more accommodating monetary policy could help the AUD extend through resistance as markets price in additional FOMC rate cuts. With stops at 0.6795 and 0.6815 upside moves will be hard won and we maintain fair value estimates through the medium term remain skewed to the downside. A break below support at 0.6750 opens the door to a broader move lower and a test of recent lows below 0.67 with the AUD trading between 0.66 and 0.69.

Key Movers

The USD drifted lower overnight as investors adjusted positions leading into this weekends Jackson Hole Symposium of Central Banks. Analysts are anticipating Fed Chair Jerome Powell will proffer a measured review of global economic conditions, citing a flattening in the yield curve and the prolonged trade war as reasons to maintain an open and easily adjusted monetary policy outlook. A dovish lilt from the Fed President will heighten expectations for a second rate adjustment and open the door to further USD downside.

The Great British Pound jumped upward overnight as the hopes a resolution to Brexit negotiations could be found before the October 31 deadline. German Chancellor Angela Merkel hinted that a compromise on issues surrounding the Irish Border backstop may be found, bolstering expectations a deal can be done. Sterling jumped back through 1.22 and touched session highs at 1.2265 before profit taking forced it to drift lower into the daily close. With direction and fortunes pinned to the Brexit process this latest development could prompt a halt to the spate of recent selling. Markets and investors have bet heavily against the GBP since May’s resignation and Boris Johnson's succession and any positive Brexit news could open the door to a marked reversal and upward correction.

Expected Ranges

AUD/USD: 0.6730 - 0.6815 ▼

AUD/EUR: 0.6050 - 0.6150 ▼

GBP/AUD: 1.7830 - 1.8380 ▲

AUD/NZD: 1.0520 - 1.0680 ▲

AUD/CAD: 0.8930 - 0.9080 ▼