The sell off in the Australian dollar gathered steam on Friday evening, dragged lower once again on the back of continued, and building, concerns over the Chinese economy.
Eventually the AUD/USD finished the session at .6951, marking the lowest closing level seen since September 7 last year.
While it has staged a modest bounce so far in early Asian trade on Monday, the AUD/USD has still fallen by 4.32% year-to-date, ensuring the currency holds the unenviable record of being the worst performing G10 currency so far in 2016.
Here’s the current Australian dollar scoreboard, as at 7.55am AEDT. The AUD/USD currently fetches .6965.
- AUD/USD 0.6965 , 0.0014 , 0.20%
- AUD/JPY 81.63 , 0.02 , 0.02%
- AUD/CNY 4.5922 , 0.0099 , 0.22%
- AUD/EUR 0.6378 , 0.0022 , 0.35%
- AUD/GBP 0.4794 , 0.0009 , 0.19%
- AUD/NZD 1.0609 , 0.0023 , 0.22%
Looking ahead to Monday’s Asian session, the same factors that drove the Aussie last week look set to resume their dominance today – movements in the Chinese yuan and stocks.
All of the action is likely to begin in earnest at 12.15pm AEDT when the PBOC announces Monday’s USD/CNY fixing level.
The pair closed Friday trade at 6.5932, higher than Friday’s fix of 6.5636. It was the weakest closing level since February 2011. This suggests that capital outflows are continuing, despite several measures introduced by China’s foreign exchange regulator designed to slow these flows.
A higher USD/CNY rate indicates that the yuan has weakened against the US dollar.
Beyond the USD/CNY fix, market attention will also be centred on the movements in Chinese stocks when they begin trade at 12.30pm AEDT.
Having closed early twice last week, contributing to a 10% decline for the week – the largest in percentage terms since the height of the stock market rout in August 2015 – Chinese stocks found some strength on Friday, finishing trade up close to 2%.
While on face value this suggests the the volatility that plagued markets earlier in the week has abated, the gains were likely assisted by buying from the government’s so-called national team – a group of state-backed financial firms tasked with supporting the market during times of intense selling pressure.
Put simply, the 2% gain on Friday – at this point at least – does not guarantee that the carnage seen last week has diminished, ensuring cautious trade across the region will likely be maintained today.
Aside from the developments in Chinese markets, the latest Australia ANZ job ads series will be released at 11.30am AEDT. While a useful lead indicator on the state of Australia’s labour market, given the concerns elsewhere it’s unlikely to be market moving.