The Australian dollar endured a choppy session on Wednesday, falling in Asia before rebounding in European trade on the back of broad-based US dollar weakness.
Here’s the scoreboard at 7.55am AEDT.
AUD/USD 0.7839 , 0.0016 , 0.20%
AUD/JPY 87.27 , -0.85 , -0.96%
AUD/CNH 5.1130 , 0.0015 , 0.03%
AUD/EUR 0.6555 , 0.0003 , 0.05%
AUD/GBP 0.5801 , 0.0024 , 0.42%
AUD/NZD 1.0892 , -0.0029 , -0.27%
AUD/CAD 0.9826 , 0.0076 , 0.78%
The main theme of the session was renewed weakness in the US dollar following a report from Bloomberg that China was considering slowing or even halting purchases of US bonds.
When the headlines hit, it saw the US dollar slump while benchmark US 10-year note yields rise to as high as 2.6%, the highest level since March 2017.
“The US dollar index shed 0.5% in response to the China headlines, and is currently down 0.3% on the day,” said Imre Speizer, senior market strategist at Westpac.
That report initially helped the Australian dollar push to as high as .7866. However, mirroring the reaction in other markets, those moves were partially reversed in the second half of the session.
“News that China might slow or halt treasury purchases could be opportunistic political signaling amid developing trade tensions,” said Richard Franulovich, head of FX Strategy at Westpac.
“Global trade issues seem set to come to the fore with Trump to attend the Davos World Economic Forum and administration officials reportedly close to deciding on whether to impose trade sanctions on China.”
Septicism over whether China will truly slow or halt asset purchases partially explains the reversal of the initial market moves to the report.
While the Aussie managed to eke out gains against the US dollar, it fell heavily against the Japanese yen, something Greg McKenna, chief market strategist at AxiTrader, put down to continued fallout from the Bank of Japan’s decision earlier in the week to trim purchases of longer-dated Japanese government bonds as part of its quantitative and qualitative easing program.
“The bond selloff, which started this week with the BoJ tweak of its operational buying, reinforced the Yen’s surge and it is the Japanese currency which is again the biggest mover against the USD and on the crosses,” he said in his morning note.
Turning to the session ahead, the main event in Asia will be the release of Australia’s November retail sales report at 11.30am AEDT.
After rising 0.5% in October, the median economist forecast is looking for an increase of 0.4% today.
Outside of Australia, the remaining data highlights include Eurozone industrial production, Canadian new home prices along with producer price inflation and initial jobless claims from the United States.
On the central bank front, the ECB will also release the minutes of its December policy meeting.
“[They] are unlikely to provide too much new detail but may offer some different views among members relating to the future of the asset purchase program,” says Speizer at Westpac.