Renewed Shanghai Lockdown Fears Weigh Heavy on AUD
AUD
The AUD trades weaker across the board, due to Greenback strength and restrictions being re-introduced in a number of cities in China, which continues to obstruct the Australian commodity and export markets. Asian equities finished largely in the red with CSI300 down 1.7%, its biggest fall in 7 weeks, as restrictions were re-imposed in several Chinese cities. The ASX fell on Monday’s close down 1.15%, with healthcare the only sector posting gains. Commodities performed poorly in the last 24 hours, with Gold and Silver losing -0.1% and -0.6% a piece, however the worst performers were Iron Ore and Copper, losing out -2.0% and -2.7% respectively. The softer market sentiment to start the week has been driven in part by “bad news” from China. Notably, (1) regulatory fines were visited upon Alibaba Group and Tencent Holdings by China’s State Administration for Market Regulation, (2) a group of China Evergrande’s bondholders rejected an extension for a debt payment that’s due, which threatened to take the company into default, and (3) new cases of Covid-19 in Shanghai were climbing again along with orders for mass testing, as new sub-variants were challenging China’s zero-tolerance approach. In upcoming data, Westpac Consumer Sentiment and NAB Business Confidence will be released later this morning, and Employment Data will be released on Thursday morning. The Employment Change is expected to land at 25k, less-than-half of the prior release of 60.6K. However, the Unemployment Rate is expected to slip to 3.8% vs. 3.9% reported previously.
USD
AUDUSD is trading significantly weaker this morning, having touched over two-year lows of 0.6716, before recovering slightly to trade at 0.6735 at time of writing. AUDUSD trades near a fresh 2-year low as demand for the greenback surged in a risk-averse scenario. As one would expect, global indexes settled in the red weighing further on sentiment and on the Aussie. Weakness in technology weighed on broader risk sentiment overnight with the NASDAQ finishing the session -2.3%, while the S&P 500 and the Dow Jones fell 1% and .5% respectively. U.S 10 year yields fell 9bps ahead of tomorrow’s key U.S inflation data while crude oil fell 1.3% to $103.50 a barrel. The US dollar index (DXY) has printed a fresh 19-year high at 108.27. The DXY extended its gains beyond the prior high of 107.79 on a higher consensus for US Inflation due on Wednesday night. Only second-tier data due from the US tonight as markets will be watching the re-emergence of Covid sub-variants in China closely.
EUR
AUDEUR trades lower this morning, reaching 5-day lows of 0.6674, before coming back up to trade at 0.6705 at time of writing. Nothing positive for European equities, with the DAX -1.4%, and the CAC -0.6%. The Euro is under pressure due to concerns that an energy crisis will force the eurozone into a recession. Reuters reported that the biggest single pipeline carrying Russian gas to Germany, the Nord Stream 1 pipeline, began annual maintenance on Monday, with flows expected to stop for 10 days. ''Governments, markets and companies are worried the shutdown might be extended because of the war in Ukraine.'' Meanwhile, EUR bears increased again last week as the market turned its attention to recession risks for the Eurozone. This is linked to potential gas shortages during the winter and fears that industry may suffer rationing. This scenario is likely to focus the market on fragmentation risks. In data, a slew of insignificant data to be released, with EU Economic Forecasts due out tomorrow.
GBP
AUDGBP trades weaker this morning, having scraped 7-day lows of 0.5661, before recovering marginally to trade at 0.5661 at time of writing. In equities, the FTSE trades flat, posting at 0% growth in the last 24 hours. Bank of England Governor Andrew Bailey said on Monday that he thought the BoE's most recent forecast for inflation, showing it was likely to fall sharply next year, remained valid. "I always go into forecasts with an open mind, and that's critical, but I think the basic fundamentals of that profile remain in place today," the top central banker told lawmakers. ''Inflation was likely to be back at its 2% target in around two years' time, he added. More political scandal has begun to descend on UK PM Johnson at the start of last week which culminated in his resignation. Looking ahead, hopes of a more coherent government are likely to mingle with uncertainties about the policies of Johnson’s successor, suggesting that GBP may lack direction near term.
NZD
AUDNZD trades lower this morning, having touched lows of 1.0991, before coming back up slightly to trade at 1.1015 this morning. On the economic docket for the Kiwi Dollar is the Official Cash Rate and RBNZ Rate Statement being released tomorrow at midday with markets expecting an increase of 50bps to 2.50%.