It’s been a massive 48 hours of trade for the Aussie dollar which has been buffeted by China’s surprise decision to devalue the yuan on Tuesday.
After the initial wave of selling in the wake of the move of the yuan to 6.23, the Aussie came under further pressure again yesterday morning when the official reference rate was allowed to depreciate another 1.6% to 6.33. That took it to a fresh 6-year low of 0.7216.
But it has rallied around 170 points, 1.7 cents, against the US dollar since the low as forex traders reassess what the Chinese move means for the Fed. That’s seen the euro closing in on 1.12, the Kiwi back above 66 cents and the Canadian dollar pushing USDCAD back down to 1.29.
The BNZ’s Wellington-based strategist Kymberly Martin wrote this morning that its all a result of market “wavering in its expectation for imminent Fed rate hikes.”
It’s a view shared by Allianz’s Mohamed El-Erian who told Business Insider that “Other countries need to consider the implications (of the Chinese devaluation), including the US Federal Reserve which now has a new factor to consider as it prepares for its important September FOMC policy meeting.”
The Aussie, euro, Kiwi and Canadian dollar rally tells us forex traders are betting the December meeting is now the favourite for US interest rate lift off.
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