- The Australian closed higher on Monday, registering its first gain in over a week.
- The AUD/USD had fallen to fresh multi-year lows earlier in the session on the back of a sharp plunge in Chinese stocks and yuan.
- There’s very little on the economic calendar on Tuesday, paving the way for Chinese markets to dictate direction in the first half of the session.
The Australian dollar rose on Monday, recovering after hitting fresh multi-year lows to close higher for the first time in six trading sessions.
Holidays in the US and Canada, leaving liquidity conditions thin and US bonds markets closed, may have contributed to the sharp and sudden turnaround for the Aussie.
Here’s the scoreboard at 8am in Sydney.
AUD/USD 0.7076 , 0.0025 , 0.35%
AUD/JPY 80.12 , -0.06 , -0.07%
AUD/CNH 4.8954 , 0.0338 , 0.70%
AUD/EUR 0.6157 , 0.0035 , 0.57%
AUD/GBP 0.5402 , 0.0024 , 0.45%
AUD/NZD 1.0959 , 0.0034 , 0.31%
AUD/CAD 0.9172 , 0.0051 , 0.56%
After opening the week at the lowest level since February 2016, the AUD/USD range-traded for a majority of the Asian session, largely mirroring the movements in the offshore and onshore-traded Chinese yuan, albeit to a smaller scale.
However, that changed in late in the Asian session with sudden weakness in the yuan and a sharp plunge in Chinese seeing the AUD/USD fall to .7042, a new low in the current downtrend.
Reports of tense meeting between US Secretary of State Mike Pompeo and Chinese Foreign Minister Wang Yi in Beijing did little to help sentiment.
After remaining under pressure throughout European trade, the selling in the Aussie suddenly reversed as US stocks rebounded after falling heavily earlier in the session.
A small recovery in the offshore-traded yuan, along with thin market conditions, may have also encouraged short-covering against the greenback, resulting in the AUD/USD screeching higher in the latter parts of trade.
In the end, the AUD/USD closed at .7076, registering its first daily gain in over a week.
The Aussie also gained against most major crosses with the exception of the Japanese yen which was the standout performer for the session.
The euro came under selling pressure on renewed concerns about Italy’s fiscal outlook, resulting in Italian 10-year government bond yields scaling fresh highs.
“[The] EUR fell against most major currencies and Italian government bond yields spiked up on concerns the disagreement between Italy and the European Commission (EC) over Italy’s 2019 budget proposal will worsen,” said Elias Haddad, Senior Currency Strategist at the Commonwealth Bank.
“The EC is expected to give its formal opinion on Italy’s fiscal plan by 15th October. So far the EC has simply warned that Italy’s fiscal plan is a significant breach of EU rules.”
The Aussie also gained ground against the New Zealand and Canadian dollars, perhaps benefiting from strength in coal and iron ore markets.
Turning to the session ahead, broader movements in the Aussie will likely be determined by offshore factors, particularly the performance of Chinese markets during the Asian session.
Chinese commodity futures, the onshore-traded Chinese yuan and stocks will all resume trade between midday to 12.30pm AEDT.
On the data front, the National Australia Bank (NAB) will release its monthly Australian business confidence survey at 11.30am AEDT. Given the importance of labour market conditions and business investment to help achieve the RBA’s policy objectives, these areas will be watched closely, along with the headline conditions and confidence indexes.
Given recent softening in services and construction PMIs released by the Australian Industry Group, risks to the NAB may be to the downside.
Apart from current account data from Japan, the Asian economic calendar is quiet, leaving sentiment and technicals to dictate direction.
Later in the session, highlights include German trade data, Canadian housing starts and the NFIB Small Business survey from the United States.
On the central bank front, Evans from the US FOMC and Boradbet from the BoE are also scheduled to speak.
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