AUD under pressure as negative China sentiment dominates direction
Daily Currency Update
The Australian dollar tracked sideways Monday, dithering around US$0.64, in the face of rising US treasury yields and more negative China sentiment.With little headline data on hand to drive direction, our attention turned to Chinese 1 and 5-year loan rates. Most expected Chinese banks would cut rates by 15 basis points, in line with last week's PBoC rate reduction. Instead, 5-year rates were unchanged and 1-year rates were only amended by 10 basis points.
The decision elevated concerns surrounding domestic demand and consumption in China, highlighting just how ineffective monetary policy changes have been to date. The yuan fell toward intraday lows at 7.34, dragging the AUD toward intraday lows at US$0.6389, before supports were engaged.
With US treasuries on the rise and negative China sentiment spurring a broad risk-off narrative, the AUD will likely remain under pressure through the near term.
Our attentions turn now to global PMI data and the Jackson Hole Symposium on Monetary policy for direction through the week.
Key Movers
With little headline news and data on hand, Monday's price action across major currencies was largely muted. More negative China economic news forced the yuan toward intraday lows at 7.34 before supports were found, likely on the heels of intervention and State bank buying.The yen again gave up 146 amid a higher global rates backdrop, with 2 and 10-year treasury yields reaching levels not seen since 2007. The steepening curve highlights the yield disadvantage plaguing yen demand and until the BoJ moves off its ultra-easy monetary policy, program costs to defend the currency will become increasingly more expensive.
With the euro and GBP tracking within well-defined ranges, our attention turns to global PMI data and the Jackson Hole Symposium on Monetary policy for direction through the week, while China sentiment continues to drive the risk narrative.
Expected Ranges
- AUD/USD: 0.6350 - 0.6450 ▼
- AUD/EUR: 0.5850 - 0.5950 ▼
- GBP/AUD: 1.9720 - 1.9980 ▲
- AUD/NZD: 1.0750 - 1.0850 ▲
- AUD/CAD: 0.8650 - 0.8750 ▲