Tepid Risk Sentiment as Default Concerns Plague Chinese Developer

AUD

The AUD had a mixed session across most major currency pairs overnight. Asian Equities were mixed with Hang Sang losing a significant -3.3% while the Nikkei was up 0.6% and the Shanghai Comp gained 0.2%. The ASX was down -2.1% on Monday, falling its lowest level in 3 months. The VIX, which is an index that measures the level of risk and fear within the market, was trading above 25 (+23.5%) for the first time since May, which illustrates the heightened caution engulfing markets currently and weighing on AUD. Commodities had a subdued session with Gold up 0.1% and Silver up 0.2% and Iron Ore bounced 2.9% off’ yesterday’s low in light trade, however still below $100/t having traded as high as $230/t in May. The negative risk sentiment is expected to continue today with China out for holidays. It is unlikely we will get any new information regarding Chinese property giant Evergrande's potential default woes until they return to work tomorrow and the delay is likely to weigh on investor confidence. In local data, the RBA Board Minutes will come into focus. Markets will be looking for confirmation in the Minutes of Governor Lowe’s recent dovish overtones, including in his Anika Foundation speech this week where he pushed back against current market expectations for the cash rate to rise before 2024.

USD

The AUDUSD seesawed to as low as 0.722 before coming back to trade at 0.7258 at the time of writing. US Equities were hit hard overnight as the ongoing China Evergrande debt issues and the prospect of tapering from Fed weighed on risk sentiment. The Dow Jones and the S&P both fell 1.8% while the Nasdaq finished 2.2% lower. The yield on 10-year US Treasuries declined three basis points to 1.34%. Brent crude fell 1.4% to $72.28 a barrel. In early US data overnight, the NAHB Housing Market Index for September rose from 75 to 76, beating expectations of 75 along the way. Tonight's lack of data will be temporary, investors keenly anticipating information about the timing and duration of QE tapering from the upcoming FED meeting tomorrow night.

EUR

The AUDEUR pair traded as low as 0.6161 before coming back to trade at 0.6188 this morning.  European Equities were overwhelmingly down with the DAX losing -2.3%, the CAC down -1.7% and the Eurostoxx 50 underperformed -2.11%. In early EU data, German PPI MoM beat expectations of 0.8% printing at 1.5%, while YoY was 12.0% (11.1% expected). As reported by the Federal Statistical Office this was the highest increase compared to the corresponding month of the preceding year since December 1974 (+12.4%), when prices rose strongly during the first oil crisis.  There won't be any high-tier macroeconomic data releases featured in the European economic docket on Tuesday.

GBP

The AUDGBP bucked the trend to make a gain, trading at a rate of 0.5310 at the time of writing. The London benchmark FTSE 100 fell -0.9%. There is little high-tier economic data on the docket today with traders' focus being on this Thursday’s BoE meeting. In the last meeting, Michael Saunders voted to finish the bank’s bond purchasing program, but most MPC members kept the pace unchanged. Concerning a raise of interest rates, the BoE’s Governor Andrew Bailey commented that four out of eight MPC members thought some initial conditions had been met to raise rates to explore the possibility of raising interest rates. Nevertheless, investors see a rate hike as a remote possibility only, instead expecting a rate hike in 2022.

NZD

The AUDNZD also made minor gains, trading at 1.03492 at the time of writing. A risk-off mood has recently weighed on both antipodeans, the main catalyst is the fears emanating from China as the country’s biggest real estate player Evergrande is heading for a default this week, with estimated dues of above $300 billion. In addition to Evergrande's woes, Fed tapering concerns have also weighed down on the AUDNZD prices. Little local NZ data on the docket today with only tomorrow's GDT (Global Dairy Trade) being the only mention. NZ also seems to have a handle on their Delta outbreak with case numbers reducing and certainly not following the pattern seen in Sydney and Melbourne.