- The Australian dollar endured a wild session on Tuesday, reversing hard after falling earlier in the day as the Chinese yuan suddenly strengthened.
- Chinese markets will likely dictate market direction today despite the release of major economic data in Australia.
- US markets will be closed for the Independence Day holiday.
The wild swings in the Australian dollar continued on Tuesday, shooting higher in the second half of the session after tumbling to a 18-month low on Monday.
Much of the Aussie’s movements reflected those in the Chinese yuan, a trend that look sets to repeat today despite the release of major Australian economic data.
Here’s the scoreboard at 7am in Sydney.
AUD/USD 0.7383 , 0.0044 , 0.60%
AUD/JPY 81.63 , 0.25 , 0.31%
AUD/CNH 4.9205 , 0.0159 , 0.32%
AUD/EUR 0.6332 , 0.0027 , 0.43%
AUD/GBP 0.5595 , 0.0012 , 0.21%
AUD/NZD 1.0930 , 0.0006 , 0.05%
AUD/CAD 0.9701 , 0.0025 , 0.26%
After coming under renewed selling pressure as the Chinese yuan slumped to an 11-month low, the Aussie reversed those losses and then some in late afternoon trade in Asia, helped by a strong reversal in the Chinese yuan.
In a statement posted on the People’s Bank of China’s (PBoC) website on Tuesday, Governor Yi Gang said the bank was closely watching fluctuations in the foreign exchange market and would “seek to keep the yuan at a stable and reasonable level”.
Before that statement dropped, the USD/CNH — offshore traded yuan — reversed hard after hitting an 11-month high of 6.7326 earlier in the session, raising suspicions the PBoC may have ordered Chinese state-run banks to step in to support the yuan.
The USD/CNH currently trades at 6.6623.
While the movements in the yuan were influential on broader currency markets, the Aussie managed to outperform the pack, in part due to a surprise move from the Reserve Bank of Australia (RBA) at its July monetary policy meeting.
Though official interest rates were left unchanged at 1.5%, the RBA dropped its warning that “an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.
That indicates the RBA is happy with the Aussie’s recent drop, and less concerned that it will drag on inflation or economic growth. Naturally, traders responded by buying.
Along with the yuan, that helped to push the AUD/USD to as high as .7404 before giving back some ground late in the session.
The modest decline followed a late slide in US stocks, driven by renewed concern over trade tensions between the United States and China.
Turning to the day ahead, it’ll be a busy one for traders who will have to navigate both the swings in Chinese financial markets as well as major economic data in Australia.
On the domestic data docket, the Ai Group will release its Performance of Services Index at 8.30am AEST.
That will be followed by the main event — the release of retail sales and international trade figures for May from the ABS — at 11.30am AEST.
Outside of Australia, markets will also receive a raft of services PMI reports from China, Japan, the UK and Europe throughout the session.
US markets will also be closed for the Independence Day holiday, something that will contribute to lower levels of market liquidity and, therefore, increased volatility.