Having suffered its largest one day percentage decline in over a month on on Friday, falling 1.28%, the Australian dollar has found its footing in early Asian trade on Monday, buoyed by stronger-than-expected Chinese economic data released over the weekend and a touch of short covering from investors.
As at 8.45am AEDT, the AUD/USD currently buys .7200, above Friday’s closing level of .7186 but well below the .7279 level seen at the start of trade on Friday.
While the Aussie has found support this morning, Richard Grace, chief currency strategist at the CBA, doesn’t believe the recent uptrend will last.
“Given the large supply-led fall in oil prices on Friday and the weaker commodity-price led New York close in AUD, we anticipate the early morning rally in AUD will fade,” wrote Grace in his Monday morning note.
“AUD is likely to end the week lower, driven lower by lower commodity prices and USD strength following the FOMC’s interest rate lift on Thursday morning.”
With no major domestic data scheduled on Monday, Grace believes markets will be paying close attention to movements in the Chinese renminbi given the PBOC signalled on Friday its intention to change the way it will manage the value of the CNY moving forward.
“The PBoC signalled its intention to change the way it will manage the value of the CNY by potentially loosening the peg to the USD and starting to track CNY against a trade-weighted basket of currencies,” wrote Grace.
“Market participants were quick to conclude that the central bank was shifting to a new FX regime and more flexibility (and CNY weakness) is warranted, with USD/CNY lifting to its high of just a tad below 6.56 before being sold down to 6.52 levels in Friday trade.”
“We believe the objective of the PBoC is simply trying to divert market attention from the USD/CNY cross.”
Given the interconnectedness between the Chinese and Australian economies, the Australian dollar tends to be sensitive to movements in the Chinese currency. The weakness in the renminbi on Friday likely contributed to the sharp decline recorded in the Australian dollar.
Movements in the renminbi aside, there are no major domestic data releases scheduled on Monday. The global data calendar begins to accelerate from tomorrow, culminating in the release of the US Federal Reserve’s monetary policy decision on Thursday morning at 6am AEDT.
Here’s the current Aussie dollar scoreboard.
- AUD/USD 0.7200 , 0.0014 , 0.19%
- AUD/JPY 87.22 , 0.19 , 0.22%
- AUD/CNY 4.6467 , -0.0007 , -0.02%
- AUD/EUR 0.6548 , -0.0006 , -0.09%
- AUD/GBP 0.4725 , -0.0006 , -0.13%
- AUD/NZD 1.0730 , 0.0022 , 0.21%