AUD/USD: Evergrande default fears abate, US dollar anchored ahead of Fed

  • AUD/USD better bid on positive risk sentiment.
  • Evergrande risks are abating and markets no await the Fed decision.
  • 0.7280 and 0.7200 are the key levels to watch for. 

Risk related currencies, such as AUD, are firmer mid-week following news that Chinese property giant Evergrande said it would make an upcoming yuan bond coupon payment.

At the same time, today's Federal Reserve meeting coming-up has anchored the US dollar. At the time of writing, AUD/USD is 0.4% higher at 0.7260. The pair has climbed from a low of 0.7224 to a high of 0.7268 so far on the day. 

Evergrande risk abates

China arrived back from a two-day holiday on Wednesday and its return came with some positive news which lifted spirits. Firstly, The People's Bank of China, the PBoC, injected cash into the banking system, temporarily soothing fears of imminent contagion from the debt-laden property developer Evergrande.

The PBoC injected 90 billion yuan into the banking system. This was signalling support for markets and while there are questions over whether the government would bail out Evergrande, investors are taking some assurance that it will indirectly provide support with such measures.

''It’s still unclear how officials will resolve the situation, but we stand firmly by our call for a managed debt restructuring or some sort of official unwind program,'' analysts at Brown Brothers Harriman said. 

China Evergrande agreed to settle interest payments on a domestic bond on Wednesday. Evergrande is scrambling to avoid defaulting on a number of bonds with payments due this week and $47.5 million dollar-bond interest payments that are due next week also. Markets remain cautious. 

Nevertheless, the Shanghai Composite index closed up 0.4% on Wednesday on the statement in which Evergrande declared the issue relating to its next interest payment due Thursday "resolved." US stocks have also traded higher in midday trade on Wednesday as the concerns eased. 

The Dow Jones Industrial Average rose 1.14% with S&P 500 up by 1.06% and Nasdaq higher by 0.88%. All sectors are in the green with energy leading, followed by financials. AUD/USD is highly correlated to the performance of the stock market, so it too is elevated ahead of the Fed at the top of the hour. 

It is Fed day

The two-day FOMC meeting ends with a decision on the Fed's interest rate this afternoon. The US dollar is little changed ahead of the decision but has been anchored near 93.20 as measured by the DXY index. While no changes to the policy are expected, new macro forecasts and Dot Plots will be released today and investors will be on the lookout for some modest tweaks to the forecasts.

''According to the Fed’s June projections, it will have met its dual mandate by the end of 2023 and supports the view that rate hikes will begin sometime that year,'' analysts at Brown Brothers Harriman said. ''Of note,'' the analysts added, ''2024 will be added to the forecast horizon today and will be another crucial part of the Fed’s forward guidance.''

Watch live, Fed's chair Powell

AUD/USD technical analysis

AUD/USD is on track for the 50% mean reversion target near 0.7280. On the downside, a test of 0.7200 is eyed as being the -272% Fibonacci retracement of the 4-hour correction o the bearish impulse:

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD treads water around 1.1600 after US data

EUR/USD continues to fluctuate in its daily range around 1.1600 as the latest data releases from the US failed to trigger a meaningful market reaction. New Home Sales in the US surged by 14% in September and consumer sentiment improved in October.


GBP/USD retreats to 1.3800 area as dollar holds its ground

GBP/USD advanced to a daily high of 1.3830 during the European session but reversed its direction in the second half of the day. With the upbeat US data helping the greenback find demand, the pair retreated to 1.3800 area. Eyes on Brexit headlines.


Gold extends daily slide below $1,800 on rising US T-bond yields, upbeat data

The bearish pressure surrounding gold remains intact in the American trading hours on Tuesday. Rising US Treasury bond yields and the modest USD strength continues to weigh on XAU/USD. 

Gold News

Three reasons why MATIC price will breakout to a new all-time high at $4.5

MATIC price is breaking out of an ascending triangle pattern, hinting at a 150% ascent. Transactional data shows barely any resistance level ahead for Polygon, suggesting a swift move higher. The Layer 2 solution has been at the center of DeFi evolution.

Read more

AMC entertainment gains as meme stock rally continues from previous week

NYSE:AMC gained 0.63% during Monday’s trading session. Meme stocks rally on Monday as momentum carries over from the previous week. AMC CEO Adam Aron hints that the company could be getting into the cryptocurrency business.

Read more