Evergrande and FOMC in focus as risk aversion remains front and centre

AUD - Australian Dollar

Monday’s risk off tenor permeated trade on Tuesday, amid ongoing concern surrounding the collapse of Chinese property developer Evergrande. Despite evidence of investors buying the dip overnight and a rally across equities, commodity currencies underperformed, and the AUD slumped toward intraday lows at 0.7220. Fears Evergrande’s collapse will spark a contagion event, rupturing confidence across equity markets has spooked investors, driving a push toward haven assets, keeping the AUD firmly range bound below 0.73 US cents.

Our attentions remain with China and any signal the government and PBOC will rescue the beleaguered property giant. Any debt restructuring should help alleviate immediate contagion concerns. The AUD remains ever vulnerable to fluctuations in the risk narrative, and we expect it will continue to bounce between 0.70 and 0.75 US cents, responding to the ebb and flow of risk sentiment until a catalyst to drive conviction emerges.

Key Movers

Risk aversion continues to plague currency markets, prompting a slide across currencies and sustained demand across haven assets, USD and JPY. The EUR and GBP offer little net change. The CAD was the day's big mover, weakening amid an ongoing correction in commodity prices and a failed bid from Prime Minister Trudeau to secure a Majority. Having called a snap election, the incumbent Trudeau had hoped to sure up renewed support and secure a majority government and while he retains the top job, he will continue to head a minority government, making it increasingly difficult to progress policy change. The CAD slipped back below 0.78 US cents to touch 0.7787 before bouncing modestly higher into this morning’s open.

Our attentions today remain with the Evergrande saga and any signal the PBOC and Chinese government will offer a liquidity injection to rescue the embattled property giant. Overnight action will be dominated by the FOMC policy update. While we expect little in the way of guidance on tapering of QE we are keenly attuned to the Fed’s updated projections and dot plot polling. Previous forecast saw a number of members bring forward their expectations for interest rate hikes into 2022 and a further move in the median forecast could drive USD support through the near term.

Expected Ranges

AUD/USD: 0.7170 - 0.7320 ▼

AUD/EUR: 0.6050 - 0.6230 ▼

GBP/AUD: 1.8650 - 1.9030 ▲

AUD/NZD: 1.0250 - 1.0370 ▼

AUD/CAD: 0.9230 - 0.9350 ▼