- The Australian dollar fell heavily on Tuesday, undermined by a slew of negative headlines relating to US-Sino trade negotiations and concerns about the Chinese economy.
- Stocks and commodities were hit hard, mirroring the slide in the Aussie.
- New Zealand inflation and BoJ policy decision are the main highlights during the Asian session on Wednesday.
The Australian dollar continued to slide on Tuesday, falling to multi-week lows against the greenback on renewed concern towards the global economy US-Sino and trade negotiations.
It also fell heavily against all of the major crosses, as seen in the scoreboard below at 8.05am in Sydney on Wednesday.
AUD/USD 0.7116 , -0.0042 , -0.59%
AUD/JPY 77.85 , -0.64 , -0.82%
AUD/CNH 4.8493 , -0.0179 , -0.37%
AUD/EUR 0.6262 , -0.0034 , -0.54%
AUD/GBP 0.5492 , -0.0059 , -1.06%
AUD/NZD 1.0586 , -0.0042 , -0.40%
AUD/CAD 0.9501 , -0.0014 , -0.15%
After opening the session at .7158, the AUD/USD began to slide in Asian trade, mirroring similar weakness in the Chinese yuan.
Rodrigo Catril, Senior FX Strategist at the National Australia Bank, said the weakness was sparked by speech from Chinese President Xi Jinping that added to concerns about the current health of the Chinese economy.
“A speech by President Xi, at an unusual meeting of China’s top leaders, added further fuel to the notion that China may be slowing faster than what the official numbers suggest,” Catril said.
“In his speech President Xi stressed the need to maintain political stability adding that the Communist Party needed greater efforts ‘to prevent and resolve major risks’.
“The speech has been interpreted by many as a sign the party is becoming more concerned about the social implications of a slowing economy.”
Further compounding the weakness in the Aussie, there were numerous negative reports surrounding US-Sino trade negotiations during the session.
“News that the US will pursue the extradition of Meng Wanzhou, China’s Huawei Technologies CFO, has been an additional factor adding to concerns over US-China trade tensions while early this morning the FT reported the US negotiators turned down an offer of preparatory trade discussions,” Catril said.
“Market were already trading with a risk off tone, but the FT news accelerated the deterioration in risk sentiment.”
Later this month Liu He, China’s vice premier, is scheduled to meet with US Treasury Secretary Mnuchin and Robert Lighthizer, Trump’s top trade negotiator.
Economic data released during the session also failed to offer any hope that a turnaround in the global economy was on the cards.
US existing home sales slumped to fresh three-lows in December while German investor sentiment towards current conditions weakened to levels not seen since early 2015.
Combined, the news flow weighed on cyclical assets that had performed earlier in the year, resulting in steep falls in US stocks, commodities and emerging market currencies.
As a proxy for global growth, the Aussie was not immune to the weakness.
Against the crosses, the largest fall was seen against the British pound that was helped by a stronger-than-expected jobs report and further speculation that a “hard” Brexit is unlikely to eventuate.
Turning to the session ahead, it will be a busy day for traders with several major data and central bank appearances scheduled.
Regionally, New Zealand Q4 CPI will be released at 8.45am AEDT. The Reserve Bank of New Zealand will also release its favoured core inflation measure at 1pm AEDT. In the past, this figure has often proven to be more influential than the CPI report itself.
The Kiwi inflation report will be followed by Japanese trade data for December at 10.50am AEDT. The latest Westpac-MI leading index for December will also be released.
The Bank of Japan will also announce its January monetary policy decision in the second half of Asian trade. No change in policy settings is expected, but the bank is likely to downgrade its inflation forecasts yet again.
Later in the day, other highlights include UK industrial orders, Canadian retail sales, Eurozone consumer confidence and FHFA house prices, Richmond Fed manufacturing index and EIA crude oil stockpiles from the United States.
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