AUD Drops Sharply As Yen Surges, on the Back of Dismal Chinese Data

With Australia’s lockdowns being prolonged, the AUD remains weak. As the number of cases continues to climb, Sydney, Melbourne, Canberra, and Darwin remain under rigorous limitations. Australia is vulnerable to the highly contagious Delta form since just 26% of people over the age of 16 have been properly vaccinated. Today was the bloodiest day of the COVID-19 outbreak in Sydney, Australia’s largest city. To restrict people’s movement, troops and police built up barriers. Australia’s limitations are among the most stringent in the world, with extremely harsh penalties for breaking the lockdown regulations.

The AUD is also being impacted by the slowing Chinese economy, according to data. Annualized retail sales in July in China were 8.5 percent, versus 11.5 percent projected, and annualized industrial production was 6.4 percent, versus 7.8 percent expected.

The Reserve Bank of Australia (RBA) is expected to become more dovish (minutes from its last meeting will be released on Tuesday). The Reserve Bank of New Zealand (RBNZ), on the other hand, remains one of the world’s most hawkish central banks and is expected to raise interest rates for the first time since 2014 on Wednesday.

The yen has risen sharply as a result of several risk-off factors, all of which are tied to the pandemic. As the coronavirus resurfaced, a slew of weaker-than-expected data from China signaled that the recovery is losing steam. Infections have increased in Japan, and Australia has imposed more restrictions. Commodity currencies are falling in general, with the Australian dollar being the hardest hit. The major European currencies are currently mixed but remain robust against the US dollar for the time being.

AUD Depreciates Sharply Against the Yen

A couple of risk-off factors have caused the AUDJPY also to fall strongly today. Heavier limits on the Delta variant’s surge are causing concern in Australia. Infections have reached new highs in New South Wales, while Melbourne has reverted to a night curfew. The Australian Capital Territory’s lockdown has been extended for another two weeks. The Northern Territory likewise goes under a three-day lockdown.

The AUD/USD pair got off to a shaky start in the new week, dropping to a daily low of 0.7331 before consolidating. As of this writing, the pair was trading at 0.7340, down 0.4 percent on the day. The US Dollar Index, on the other hand, which fell dramatically on Friday amid falling US Treasury note yields, is trading in a relatively tight range above 92.50 on Monday, allowing AUD valuation to dictate AUD/USD swings.

Retail sales in China increased by 8.5 percent year over year in July, according to figures released earlier in the day. By a large margin, this data fell short of the market consensus of an 11.5 percent increase. Furthermore, Industrial Production increased by 6.4 percent in the same period, compared to experts’ expectations of 7.8%. The China-proxy AUD was hit hard by these poor numbers at the start of the week.