AUD tracks lower as new Chinese lockdowns dampen risk appetite

Daily Currency Update

Markets adopted a more cautious tone entering the new week driving commodity prices, equities and the Australian dollar lower. Concerns surrounding China’s growth projections were back in focus as rising Covid cases have prompted officials to re-introduce Covid restrictions across a number of larger cities. Hopes China may be transitioning away from its heavy-handed approach to Covid management faded through trade on Monday as stay at home orders were issued to citizens in Shijiazhuang, parts of Guangzhou and across several districts in Beijing.

While messaging has changed in China, there is a new focus on minimising the collateral economic damage. These latest lockdown measures serve as a timely reminder that any transition away from the current Covid zero policy will likely be long and bumpy. Concerns surrounding China’s growth prospects dampened markets' appetite for risk, weighing on commodity prices and the CNY, which in turn forced the AUD lower. Having opened near US$0.67 the AUD gave up over 1% on the day, marking intraday lows at US$0.6590 before finding some support and trading sideways into this morning’s open.

Our attention now turns to RBA governor Lowe as he speaks to Price stability and supply side prosperity. We anticipate Lowe will be forced to maintain the RBA’s current schedule of monetary policy tightening in the face of sustained wage growth and declining unemployment.