AUD/USD rebounds as China looks to ramp up vaccination rates

Daily currency update

The Australian dollar rebounded through trade on Tuesday, bouncing off US$0.6640 amid an improvement in risk sentiment. The market focus remains on China and changes in its COVID management policies. Reports Chinese authorities are preparing to ramp up vaccination rates, particularly among the elderly, have been viewed as another step towards living with the virus and a move away from the current COVID zero program. Vaccination rates among China’s elderly have been a significant impediment to lifting restrictions. With authorities announcing plans to allow booster shots within 3 months of a previous vaccination shot, markets are preparing for a broader re-opening and rolling back of COVID restrictions come April 2023. The CNY surged on the heels of the report, dragging the AUD back through US$0.67. Having touched intraday highs at US$0.6750, the AUD retreated through the later hours of the overnight session and opened this morning, buying US$0.6680. Our attentions turn now to domestic CPI data, Chinese PMI’s, European CPI data and US ADP employment payrolls. Despite the crowded data docket, we anticipate direction will be largely well contained, with the AUD continuing to trade between US$0.6580 and US$0.6780 leading into Friday’s all-important US non-farm payroll print.

Key movers

Price action across major currencies offered little to excite investors as the euro, GBP, JPY and DXY index all tracked within a relatively narrow range. Reports China will seek to ramp up vaccination rates among the elderly have helped fuel improved risk sentiment and steer the CNH and CNY higher, lifting key commodity currencies with them. The CAD was the surprise underperformer, giving 1% on the day despite domestic GDP growth outpacing market expectations. Our attentions turn now to a crowded macroeconomic ticket headlined by European CPI. While German CPI printed in line with market expectations, overnight, Spanish CPI fell well below analysts’ mean estimates. With European Central Bank officials highlighting the importance of this month’s inflation update in shaping the near-term direction, we are keenly attuned to anything marginal short or above market estimates. With analysts divided on whether European Central Bank policy makers will adopt a 75 or 50-point hike next month, we anticipate elevated volatility in the wake of this evening’s data update.

Expected ranges

• AUD/USD: 0.6620 – 0.6750 ▲
• AUD/EUR: 0.6420 – 0.6520 ▲
• GBP/AUD: 1.7720 – 1.8020 ▼
• AUD/NZD: 1.0750 – 1.0820 ▲
• AUD/CAD: 0.8970 – 0.9150 ▲