Dollar Drifts, Aussie Resilient Despite China’s Property Woes

After both the Aussie and the Kiwi in the dollar pairings plunged 0.80 percent on Friday as risk-proxy indicators, rising commodity prices, fading Evergrande worries, and state reopening plans have brought the AUD/USD 0.35 percent higher to 0.7285 today.

At the end of the prior week, the currency markets in New York dragged to a conclusion, with a jump in US rates erasing the US dollar’s early losses and sending the majors to a nearly flat close. In directionless Asian trading, the dollar index increased 0.21 percent to 92.28, before dropping slightly to 92.24. The index is currently trading in a range of 92.00 to 92.50.

As a result, both Antipodeans are exposed to more selling pressure if news from China continues to deteriorate. As a result, both are likely to be sell-on rallies for the first few days of this week, especially if China’s PMI data on Thursday is quite negative.

Given global concerns over China’s property industry and the US Federal Reserve’s decision to raise interest rates yet again, the Australian dollar did well to retain its ground last week. In the coming week, the A$ will continue to be focused on China, while Australia’s domestic data schedule will include retail sales and housing.

Aussie Regains Ground, Risk-On Mood Weakens USD

Given that the Aussie is frequently used as a proxy for concerns about China’s economy, the AUD/USD fell to 0.7220, its lowest level since August 24. Even when news broke that Evergrande had missed bond interest payments, 0.7200 remained firm. There was a minimal official statement from Chinese officials, but it quickly became clear that, while investors – notably international investors – would lose money, China’s economy and world markets would not be jeopardized. The stock market has recovered.

With data from US futures markets showing big net short positions as of September 21, around the time concern over China real estate was at its peak, investors may have already priced lots of bad news into the Aussie.

The focus subsequently shifted to the FOMC, the policy-making body of the Federal Reserve. “A slowdown in the pace of asset purchases may soon be warranted,” the committee stated, assuming progress toward its goals of maximum employment and price stability continued. This was pretty much what we expected — no specific timeframe for tapering bond purchases, but “soon.”