Investors Run for the Hills as Risk Sentiment Sours

AUD

The AUD has taken a backward step against most major currencies overnight, brushing off a resurgence in Iron Ore prices, succumbing to the strong USD and jitters around the ongoing debt corporate debt issues in China. Risk-off was back in markets as Evergrande, the troubled Chinese property giant, missed a coupon payment of $45.2 million (which is basically in interest payment on its mountain of debt). The company has a 30-day grace period for each payment, so it could become a problem if the situation continues in the upcoming weeks. The ongoing risk event really weighing in on Asian Equities which were largely in the red on the close, with the CSI 300 falling to the lowest level this month, down 1.2%. The ASX finished the session down 1.08% to close at 7196.7. Wall Street fare slightly better but was mixed, with both the S&P500 and the Dow Jones gaining +0.3%, while the NASDAQ pared earlier gains and ultimately finished -0.2% lower. Commodities might have been the only saving grace that offered support to the AUD as Iron Ore retraced some of its earlier losses to gain +4.2%, though Gold was trading flat. More attention will be paid to China today as the dragon nation releases its official PMI figures, with the Manufacturing PMI likely to remain unchanged at 50.1 while Caixin Manufacturing PMI carries an upbeat forecast of 49.5 versus 49.2 prior for August. Markets are watching closely to anticipate the speed and depth of the slowing Chinese economy which has strong knock-on effects to our local economy.

USD

The AUDUSD took a step southbound trading back into the 0.71 levels as the Greenback enjoys stimulus-cut talks from a handful of Federal Reserve speakers, trading at 0.7176 this morning. Taper talks were the common theme for the day, with Fed Powell leading the way to defend his push for scaling back the easy money while teasing a fight against heating inflation, despite still describing it as “transitory”. The implication of a fast-approaching deadline for an agreement between US policymakers adding another risk element as the Democrats and Republicans keep jostling over the US stimulus and debt ceiling extension. Fed tapering concerns underpinned the US Treasury yields to refresh the highest levels in 15 weeks, before easing to 1.54%. Upbeat prints of US Pending Home Sales for August also buoyed bond prices, providing additional strength to the US dollar.  The USD index (DXY) benefited from the risk-off mood the most, attracting safe-haven plays and flashing the heaviest daily jump since mid-June to print a one-year high. Tonight, there’ll be some more Fed talk from speakers Williams, Bostic, and Evans, which will likely add more commentary to the taper timeline haze.

EUR

The AUDEUR sitting slightly lower on the day although was trading higher earlier on in the peace, currently at 0.6185 this morning. The Euro seemed to be feeling the pain of a strengthening Greenback, with currency markets largely ignoring European Central Bank President Christine Lagarde speaking at the ECB Forum on Central Banking, where she said that the Eurozone could be back at pre-pandemic levels by year-end. She mentioned they would be watching wage negotiations in the region. Regarding inflation, she explained expectations have gone up but are still distant from their targets. European data was generally positive but couldn’t outweigh market sentiment. Italian PPI YoY was higher in August at 13.8% from a previous 12.3%, while MoM was 0.4% down from a previous 2.5%. Eurozone Economic Confidence beat expectations of 117.0 printing 117.8. Looking forward there is some Preliminary CPI data from Germany, France, and Italy as well as German Unemployment, however it is likely to take a backseat to inflation and taper talks from the US.

GBP

The AUDGBP is trading at the same levels seen yesterday shrugging off the problems at the fuel pump, trading at 0.5344 this morning. A post-Brexit shortage of lorry drivers has unleashed chaos through British supply chains in everything from food to fuel, and the concern for emergency services is a critical point, especially given the Delta coronavirus crisis. Supply chain constraints exacerbated by Brexit means that UK consumers are facing surging food and energy bills at the same time that pandemic support measures are being unwound. Meanwhile, the Bank of England Governor Andrew Bailey said yesterday that he expected Britain’s economy to recover its pre-pandemic level of output early next year, a little later than the central bank had predicted last month. Later this afternoon the UK will release a basket of data release which shouldn’t steal attention from supply concerns.

NZD

The AUDNZD trading at highs last seen in late August, sitting at 1.0451 this morning. The Kiwis had to bear the burden of the broad risk-off mood, in addition to the bad coronavirus news at home. With the COVID-19 outbreak in Auckland questioning the recently eased alert level, New Zealand Prime Minister Jacinda Ardern will have to rethink her decision during Monday’s press conference, which in turn should raise question marks for the Reserve Bank of New Zealand’s rate hike.