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AUD under pressure as China outlook sours

Daily Currency Update

The Australian dollar closed weaker on Tuesday as commodity markets faltered amid growing nervousness as to the state of the global economic outlook and China's post covid path to recovery. As relations with the West continue to sour China faces ballooning domestic debt and lackluster consumer consumption, while industrial production runs well below capacity. With the post covid recovery already losing momentum there are growing fears a China lead global economic resurgence will not materialise. The yuan continues to soften marking year-to-date lows against the USD at 7.11. The softer yuan has spilled over into commodity prices and currencies weighing on AUD. Falling to intraday lows at US$0.6505 the AUD struggled against the majority of major counterparts, sliding back below 0.61 euro and 0.5250 British pence.
Our attentions turn to RBA governor Lowe as he addresses lawmakers ahead of an all-important CPI release this afternoon. China PMI data, German CPI and US labour market data dominate the offshore docket.

Key Movers

US treasury yields tracked lower through trade on Tuesday while weaker consumer confidence data weighed on USD demand. With US markets open for the first time since the weekend debt ceiling agreement was announced US treasuries fell. Concerns surrounding the looming debt crisis had helped support the treasuries market and its resolution has allowed investors to correct positions and re-distribute wealth. The decline in yields coupled with weaker consumer confidence data forced the USD lower against the euro and GBP while the lower rates backdrop helped the Japanese yen claw back recent losses and force a move back below ¥140. The yen found added support following an unscheduled meeting between the Bank of Japan, the Ministry of Finance and the FSA. The three institutions convened to discuss the weakened yen and released a statement to reporters stressing "it's important currency markets reflect fundamentals and move in a stable manner. Excessive moves are not desirable and the government will take the appropriate response where necessary". A clear threat of intervention saw the JPY push back through ¥140 to trade at ¥139.74 this morning.
Our attentions turn now to China PMI data, German CPI, Canadian GDP and US labour market data for direction through the middle of the week.

Expected Ranges

  • AUD/USD: 0.6480 - 0.6620 ▼
  • AUD/EUR: 0.6030 - 0.6130 ▼
  • GBP/AUD: 1.8820 - 1.9220 ▲
  • AUD/NZD: 1.0750 - 1.0850 ▼
  • AUD/CAD: 0.88 - 0.89 ▼