The Australian dollar remains the whipping boy of currency markets

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  • The Australian dollar remains the whipping boy of currency markets, at least among the majors.
  • It fell heavily again on Monday, undermined by a combination of renewed weakness in the Chinese yuan, heightened geopolitical concerns and a steep and late drop in US stocks.
  • Australian building approvals and consumer confidence data will be released today. Whether they’ll be able to break the spell the Chinese yuan has over the Aussie dollar is debatable.

The Australian dollar remains the whipping boy of currency markets, at least among the majors.

It fell heavily again on Monday, giving back earlier gains as the combination of renewed weakness in the Chinese yuan, heightened geopolitical concerns and a steep and late drop in US stocks acted to drive it back towards the lows seen on Friday.

Here’s the scoreboard at 8am in Sydney on Tuesday.

AUD/USD 0.7056 , -0.0038 , -0.54%
AUD/JPY 79.29 , 0.03 , 0.04%
AUD/CNH 4.9212 , -0.0036 , -0.07%
AUD/EUR 0.6204 , -0.0005 , -0.08%
AUD/GBP 0.5514 , -0.0007 , -0.13%
AUD/NZD 1.0817 , -0.0057 , -0.52%
AUD/CAD 0.9266 , -0.002 , -0.22%

After largely trading sideways in Asian trade, the AUD/USD hit a session high of .7108 in Europe, finding support from a strong rally in European stocks. However, that all changed in the second half of trade as the offshore Chinese yuan, or CNH, fell back towards the multi-year lows stuck on Friday.

The yuan weakness, rather than US dollar strength, was the chief catalyst behind the Aussie’s slide in the latter parts of the session.

A reversal in US stocks did little to help the Aussie with all of the major indexes slumping by between 0.65% and 1.6%, giving back strong gains seen in early trade.

While the reversal in US stocks was already well underway, sentiment was not helped by a report from Bloomberg that said the US will announce tariffs on all remaining Chinese imports entering the country should talks between Donald Trump and Xi Jinping next month fail to ease trade tensions.

The US has already introduced tariffs on $US250 billion worth of Chinese imports, ranging from between 10% to 25%. The proposed move would see over $US500 billion in Chinese imports hit with tariffs of some form.

With geopolitical fears intensifying and risk assets under pressure, it was unsurprising that the AUD/USD finished the session at .7056, down 0.54% from Friday’s close.

Investing.comAUD/USD Hourly Chart

As seen in the hourly chart below, the AUD/USD has been a bit like Australia’s cricket team of late, often having promising starts with the bat before collapsing in the middle-order.

The Aussie also lost ground against the major crosses, including against the euro despite news that German Chancellor Angela Merkel will step down as leader of the ruling CDU party at the next German election, due in 2021.

Turning to the session ahead, the performance of Chinese financial markets, especially the yuan, looks set to dictate movements in the Aussie yet again.

There’ll be plenty of attention on the People’s Bank of China’s daily USD/CNY fixing level just after 12.15pm AEDT, in particular.

While it will take a backseat to broader market themes, the economic calendar is busy on Tuesday, both in Australia and abroad.

Domestically, Australian building approvals data for September will be released at 11.30am AEDT. After a steep plunge in August, the median economist forecast looks for an increase of 3.8%.

However, another downside miss will do little to ease concerns about a potential sharp residential construction slowdown in the years ahead.

There’ll also be some interest in the weekly ANZ-Roy Morgan consumer confidence report at 9.30am AEDT after the index suffered its largest percentage decline in six years in the previous survey.

RBA Assistant Governor Michelle Bullock will also speak from 1.10pm AEDT.

Outside of Australia, Japan will release unemployment figures for September at 10.30am AEDT.

Later in the session, other data highlights include Eurozone Q3 GDP and consumer confidence figures for October, German unemployment and CPI, Q3 GDP figures from Italy and France along with the latest CaseShiller house price survey and Conference Board consumer confidence reading from the United States.

On the central bank front, Bank of Canada Governor Stephen Poloz is also scheduled to speak.

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