The Australian dollar falls in sympathy with the Chinese yuan

  • The Australian dollar weakened on Monday, tracking the movements seen in the offshore traded yuan.
  • The AUD/USD fell to the lowest level since January 9 but recovered in late trade.
  • US markets return from a long weekend today. The data calendar remains quiet.

The Australian dollar weakened on Monday, tracking the movements seen in the offshore traded yuan.

As seen in the scoreboard below as at am in Sydney on Tuesday, the Aussie also weakened against most of the major crosses, albeit the losses were small.

AUD/USD 0.7159 , -0.0008 , -0.11%
AUD/JPY 78.51 , -0.09 , -0.11%
AUD/CNH 4.8684 , -0.0032 , -0.07%
AUD/EUR 0.6295 , -0.0005 , -0.08%
AUD/GBP 0.5552 , -0.0007 , -0.13%
AUD/NZD 1.0637 , 0.0017 , 0.16%
AUD/CAD 0.9518 , 0.0014 , 0.15%

With US markets shut for the Martin Luther King Holiday, trade was predictably slow with few noteworthy releases or headlines seen in the second half of the session.

After initially falling in early Asian trade, the Aussie popped higher following the release of Chinese Q4 GDP and December activity readings on industrial output, retail sales and urban fixed asset investment.

A stronger-than-expected lift in Chinese industrial output in December was one factor cited to explain the bounce in the Aussie, helping to bolster confidence that momentum in China’s industrial sectors is improving.

However, that move didn’t last with the AUD/USD falling to .7140 in European trade, the lowest level since January 9.

The IMF once again downgraded its global growth forecasts for both this year and next, although its debatable whether that was a factor behind the Aussie losing ground during the session. Markets priced in a slower growth outlook — with downside risks — long ago.

As seen in the 5-minute chart below, the AUD/USD moved inversely to the gyrations in the offshore traded yuan, or USD/CNH, reverting to the pattern often seen in quiet period of trade.

AUD/USD (yellow, RHS) v USD/CNH (purple, LHS, inverted). 5-Minute Chart. Thomson Reuters

Turning to the session ahead, it look set to be another quiet one for traders with very little on the data calendar to digest.

New Zealand services PMI, German investor confidence, UK unemployment and US existing home sales are the headline acts. None, apart from the UK unemployment report, are first-tier data releases.

Given the quiet calendar, technicals and headlines look set to remain the in the drivers seat. The Chinese yuan is also likely to remain influential on movements in the Aussie dollar.