FX Today: Aussie tracks China stocks rebound on stimulus hopes, a quiet docket ahead

The rebound in the Chinese equity markets on hopes that China will announce stimulus to spur the economic growth, which hit a 10-year low on Friday, lifted the sentiment across the fx board in Asia. On Saturday, China issued a detailed draft plan for personal income tax cuts, Xinhua reported.

Amidst China stimulus hopes, the Aussie bulls breathed a sigh of relief and staged a minor comeback above the 0.71 handle. The USD/JPY pair also moved higher towards 112.70 levels, but lacked further momentum amid broad-based US dollar softness. The Kiwi traded on the back foot, despite the risk-on rally in the Chinese stocks, as thin trading on a National holiday kept the bulls at bay. Both the EUR and GBP consolidated last week´s bounce, as markets look forward to fresh political headlines that will drive this week´s price-action.

Main topics in Asia

Italy expects budget to face EU rejection Tuesday - Reuters

May to reiterate Irish border solution rejection, but otherwise "nearly there" - Reuters

US' Kudlow accuses China of refusing to talk trade - Financial Times

Asian stocks mixed: Nikkei 225 continues Wall Street's Friday slide, China stocks rebound

US Treasury Secretary Mnuchin does not see contagion risk from China - Reuters

RBA's Debelle: “We have an open mind on what constitutes full employment”

Bank of Korea's Lee: Central bank to consider rate hike at November meeting

Key Focus ahead

We have a quiet start to a busy second-half of this week, in terms of the macro events, as the EUR calendar offers nothing of note today, except for the second-liner German Bundesbank (Buba) monthly economic report.

The NA session also remains a thin-showing, with the US Chicago Fed National Activity Index and Canadian wholesale sales report due at 1230 GMT.  However, the Italian budget-related headlines and Brexit news will continue to drive the sentiment around the fx markets.

 EUR/USD: Recovery rally to double bottom neckline likely if Italy-German spread drops below 300 bps

Moody's decision fell short of investors' worst expectations, hence, Italian markets may witness a relief rally today. The spread between the 10-year Italy and German yields will likely drop below 300 basis points (bps), lifting the EUR/USD higher.

GBP/USD sees quiet start to the week, but Brexit headlines await just around the corner

Monday sees a very thin start to the week, and traders will be keeping their eyes turned to the meatier data docket due in the latter half of this trading week, though Brexit headlines will be sure to drive broader market sentiment for the next few days.

GBP/USD Weekly Forecast: Get ready for slump as no-deal Brexit becomes a new reality check

In the absence of important macro news from the UK next week, the Brexit negotiations related news and the notion of the US economy moving full steam ahead towards gradual rate hikes is set to drive Sterling lower.

Week Ahead – Central banks and US Q3 GDP in focus; BoC poised to raise rates

Central bank meetings will take centre stage in the coming week as economic data will be in short supply.