Aussie finds support as yuan fixing bolsters risk demand

AUD - Australian Dollar

The Australian dollar crept higher through trade on Thursday extending a bounce off decade lows as markets appetite for risk improved. The AUD was bolstered by a stronger than anticipated yuan fixing rate on Thursday as the PBOC (Peoples Bank of China) set the currency value almost 100 points higher than broader market estimates anticipated. In doing so the PBOC calmed escalating nerves around US-China trade tensions and helped the AUD lead an advance in commodity driven and emerging market currencies. Having opened at 0.6750 the AUD pushed through 0.68 to touch intraday highs at 0.6818 before profit taking and resistance forced the dollar lower.

Attentions now turn today’s Statement of RBA Monetary policy, the PBOC fixing rate and the ever-evolving trade war narrative. Australia’s reliance on Chinese trade and the inextricable link to CNY performance mean the currency remains vulnerable to further yuan devaluation. The prospect of market forces driving the CNY lower as tariffs weigh on broader Chinese economic performance poses a significant risk to AUD upside. Conservative estimates anticipate the yuan will fall toward 7.039/40 in the months ahead opening the door for another test of decade lows at 0.6670.

Key Movers

The trade war has dominated direction and the broader narrative for much of the week, drawing attention away from Brexit developments and European political instability. The pound fell through 1.21 through trade on Thursday after report Johnson would hold general elections in the days after the extended divorce date (October 31) should the UK be forced to leave the with out a firm deal in place. Having touched 1.2095 sterling found support and opens marginally higher at 1.2138. Attentions now turn to q@ GDP data for direction into the weekly close.

The Euro fell through 1.12 on Thursday as concerns surrounding Italian political instability rattled investors and dampened demand for the combined unit. Having failed to form a majority government, swift elections have been called for. Having touched 1.1177 the Euro opens marginally higher this morning buying 1.1186.

Attentions turn to a host of key data sets with Japanese GDP data and China's CPI and credit figures dominating the Australasian docket.

Expected Ranges

AUD/USD: 0.6670 - 0.6830 ▲

AUD/EUR: 0.6020 - 0.6130 ▲

GBP/AUD: 1.7720 - 1.8020 ▼

AUD/NZD: 1.0430 - 1.0530 ▲

AUD/CAD: 0.8930 - 0.9080 ▲