AUD test break below US$0.67 as USD/CNH has broken key levels
Friday 16 September, 2022
Daily Currency UpdateThe Australian dollar tracked lower through trade on Thursday, testing a break below US$0.67 cents amid sustained risk aversion and a deeper Chinese yuan correction. Global rates rose again overnight as the likelihood of more Fed monetary policy tightening and the prospect of sustained and elevated inflation pressures weighs on risk assets and key industrial commodities. Markets largely ignored the domestic labour market print, brushing off a marginal increase in the underlying unemployment rate as the broader picture remains one of labour market stability. Conditions remain incredibly tight and expectations of faster wage growth helped elevate calls for another 50-point RBA rate hike. Analysts are now pricing a slightly better than 50% chance policymakers will issue a 5th consecutive double rate adjustment next month. Having touched intraday highs just shy of US$0.6770 midway through the domestic session the AUD turned lower overnight, steadily declining to mark fresh intraday lows at US$0.6696. Broad demand for the USD and another move lower in the value of the Chinese yuan saw the USD/CNH finally break above the psychological 7 mark, with investors consolidating the move and extending gains to CN¥7.0150. The deterioration in yuan value and the divergence in PBOC monetary policy spilled over to the AUD compounding the post-US CPI correction.
Our attentions turn now to monthly Chinese retail, sale, and industrial production data. With growth indicators softening this year a poor read could see investors consolidate yesterday's USD/CNY move, capping any significant AUD recovery into the weekend.
Key MoversThe most notable move across currency markets overnight was the extended depreciation in the Chinese yuan. Despite a consolidated program of intervention from the PBOC to prevent extended yuan downside, it appears their efforts have only worked to slow the pace of decline rather than prevent it. Markets demand for the CNH and CNY has deteriorated in recent months as China’s strict Covid zero policy coupled with a property market collapse have crushed the domestic economic outlook. The divergence in monetary policy between the Fed and PBOC allowed the USD to break above a key psychological barrier overnight. USD/CNH pushed through 7 and investors sought to consolidate the break extending gains to CN¥7.0150. The move spilled into the AUD and NZD as key yuan proxies. With the euro edging back toward parity and the yen stabilising around 143.50 our attentions turn to key Chinese activity data. A decline in retail sales and industrial production could prompt a further yuan depreciation.
- AUD/USD: 0.6650 - 0.6780 ▼
- AUD/EUR: 0.6680 - 0.6780 ▼
- GBP/AUD: 1.6980 - 1.7280 ▲
- AUD/NZD: 1.1180 - 1.1280 ▲
- AUD/CAD: 0.8820 - 0.8920 ▲