Aussie lower as Chinese regulatory crackdown dampens risk sentiment

AUD - Australian Dollar

The regulatory crackdown in China has led to a sharp fall in risk appetite overnight with equities, rates and commodity currencies all underperforming. The Australian dollar traded between 0.7340 and 0.7390 and currently opens today’s session trading around the 0.7360 handle. The New Zealand dollar followed a similar pattern but was seemingly hit harder, NZD/USD touched intraday lows of 0.6940 before recovering slightly to 0.6960 which saw the AUD/NZD cross rate drift higher to 1.0599.

Investors were once again bailing from Chinese equity markets in droves, with China’s CSI and Hong Kong’s Hang Seng indexes both falling nearly 4% for the second consecutive day as the Chinese government continued its crackdown on technology companies. Although the policy started last year, when the proposed listing of Ant Group, it has since developed into a wider crackdown on the sector which is viewed as being at odds with China’s middle class. As we alluded to above, the fallout drifted into other markets with risk assets selling off and weakness in USD/CNH and USD/CNY.

Although data releases have been largely overlooked of late, we have a massive docket today packed with possibly market moving events. First off the rank is Australian Q2 CPI data which is expected to show a 0.7% rise in headline CPI. With the RBA watching domestic inflation closely, and the Australian dollar currently weighed down by dovish monetary policy expectations, any deviation in today’s CPI from market expectations could inject some AUD volatility, especially in the AUD/NZD cross rate. We then move offshore to Canadian CPI data before we have an FOMC policy update. Whilst a change in policy is not expected from the FOMC, investors will be sifting through the update, and Chair Powell’s press conference for any clues pertaining to the timing of unwinding of bond purchases.

Key Movers

Whilst not necessarily a market mover, the good COVID-19 news filtering out of the UK has been a bright spot over the last 48 hours. New case numbers, which were previously at absurdly high levels of 55,000, fell for the 6th consecutive day to reach 25,000 new cases.

Another interesting observation was the weakness in the USD overnight despite the risk off tone. Normally considered a safe haven asset which rises when markets are fearful, the USD index fell 0.2%, allowing EUR/USD to rise to 1.1840 and forced USD/JPY lower, back below the key 110 level.

Expected Ranges

AUD/USD: 0.7300 - 0.7450 ▼

AUD/EUR: 0.6200 - 0.6330 ▼

GBP/AUD: 1.87200– 1.8900 ▲

AUD/NZD: 1.0500- 1.0600 ▲

AUD/CAD: 0.9250 - 0.9300 ▲