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:

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