- The Australian dollar fell to a one-week low against the greenback on Monday, weighed down by broad-based US dollar strength.
- Traders paid scant attention to the massive surge in Chinese stocks seen during the session, choosing instead to focus on political woes in Europe.
- The economic calendar is incredibly quiet on Wednesday.
The Australian dollar came under renewed selling pressure as a lift in risk aversion in European and North American trade saw it fall to a one-week low against the greenback.
Here’s the scoreboard at 8am in Sydney Tuesday morning.
AUD/USD 0.7082 , -0.0038 , -0.53%
AUD/JPY 79.89 , -0.13 , -0.16%
AUD/CNH 4.9127 , -0.0163 , -0.33%
AUD/EUR 0.6177 , -0.0001 , -0.02%
AUD/GBP 0.5461 , 0.0023 , 0.42%
AUD/NZD 1.0804 , 0.0093 , 0.87%
AUD/CAD 0.9277 , -0.0048 , -0.51%
After closing last week at .7120, the AUD/USD paid scant attention to another huge surge in Chinese stocks on Monday, losing ground steadily during the Asian session.
“The inability of [the Aussie dollar to benefit from] yesterday’s sharp rally in the Chinese stock market, on top of Friday’s 2.6% gain, is telling,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.
“In this respect, suspicion of the influence of ‘the big red hand’ or ‘team China’ in driving stock market gains at a time when further weakness would have elicited some significant ‘margin calls’ from a multitude of borrowers who have pledged shares as collateral, is something that can’t be dismissed out of hand.”
The weakness in the Aussie in Asian trade extended later in the session, reflecting a lift in risk aversion that saw traders flock back to the greenback given a lack of alternative options elsewhere.
“Broader US strength is obviously part of the reason why the AUD is lower,” Attrill said.
“It is not so much outright affection for the big dollar that is at play here but rather than fortunes of two of the major constituent parts, the Euro and Sterling.”
The euro was undermined by a reversal in Italian government bond yields which moved off earlier lows as nerves about 2019 budget negotiations intensified.
“Italian government bonds rallied to open the session following Moody’s announcement that it will maintain them at investment grade, increasing the likelihood that they will remain above junk status for the foreseeable future,” said strategists at ANZ.
“However, the move was later retraced.”
Ratings agency Standard and Poor’s is scheduled to deliver its latest rating assessment for Italian government debt on Friday.
The British pound was also in the wars, undermined by speculation that UK Prime Minister Theresa may be challenged for the Conservative Party leadership given growing concerns from Eurosceptics within the party over Brexit negotiations.
“Amid the speculation about a leadership challenge, Prime Minister May addressed Parliament about the conditions under which a negotiation extension would be needed,” ANZ said.
“This failed to calm markets”.
Given the lift in risk aversion that helped to support gains in the greenback, something that also acted to place downside pressure on the Aussie despite news of further stimulus announcements from Chinese policymakers late on Monday.
Turning to the session ahead, it will yet again be a session dictated by sentiment, positioning, technicals and headlines given a dearth of major economic releases of events.
There’s a variety of RBA Board members scheduled to speak, although it’s hard to see them making any wholesale changes to the view that while the next move in official interest rates is likely to be up, that move is unlikely to occur in the short to medium term.
There’s very little on the economic calendar later in the session to get too excited about either with German producer prices, Eurozone consumer confidence and Richmond Fed manufacturing index the headline acts.
None are likely to interest traders, underlining just how quiet the calendar currently is.
On the central bank front, Carney and Haldane from the BoE and Bostic and Kashkari from the US Fed are scheduled to deliver speeches.
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