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Investors grow increasingly wary of China equities state 'support'. Soggy AU Q2 result hurts AUD. NZD holds up with USD

Currencies
Investors grow increasingly wary of China equities state 'support'. Soggy AU Q2 result hurts AUD. NZD holds up with USD

By Raiko Shareef

It has been a relatively quiet night in markets, certainly in comparison to the rather wild swings in equities on Tuesday.

The USD is stronger against most major currencies, especially EUR and JPY, despite underwhelming US data.

The AUD traded on a 60c handle for the first time since 2009. NZD continues to defy attempts to push it below 0.63.

The US ADP private employment report for August undershot expectations modestly, but also included a paring of July’s gain by 8k to 117k. US factory orders were half as weak as expected in July, but an upgrade to June’s reading almost fully offset that disappointment.

The market did not seem in much mood to pay attention to data, in any case.

Equity markets continue to set the pace. Sentiment has stabilised a touch, after a poor start in Asia was reversed. The Shanghai Composite Index opened 4.7% lower, but reported intervention by state funds allowed it to close essentially unchanged from Tuesday’s closing levels. Investors are wary that state support for equities is simply temporary, ahead of a four-day weekend to mark China’s WW2 victory. The true test will thus come on Monday. In any case, the reprieve helped steady global equities, with the S&P 500 up 1.2%. 

The AUD traded below 0.70 yesterday for the first time in six years, even ahead of a soggy Q2 GDP report. Our NAB colleagues note that the RBA will not have been surprised by the low-ball 0.2% q/q print, and expect the pace of quarterly growth should pick up going forward. Nonetheless, AUD traded to 0.6982, but it has since recovered back above 0.70. Its weak performance suggests downside risks to our forecast profile. We currently target 0.70 by year-end.

NZD kept a relatively cool head over the past 24 hours, trading in a tight range centred just below 0.6350. It has largely defied the broad USD gain to remain above 0.63. Barring another souring of global risk sentiment, that level should hold ahead of Friday night’s US employment reports.

Today, we’ll be keeping an eye on the AU retail sales report, and ECB President Draghi’s press conference, where he may express displeasure with EUR’s recent gains, which amount to monetary tightening.


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Raiko Shareef is on the BNZ Research team. All its research is available here.

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