AUD under pressure as risk sentiment sours

Daily Currency Update

AUD - Australian Dollar

The Australian dollar shifted lower overnight, giving up 0.74 US cents and testing lows at 0.7360. Risk appetite soured, prompting a sell off across equities and broader weakness across risk correlated currencies. There is no obvious catalyst sparking the shift in sentiment, as headline news flow and macroeconomic data offered little. Instead, our attentions turn to China and rising concern surrounding its medium-term economic outlook. China continues to pursue a Covid zero policy, implementing lockdowns and restrictions as new outbreaks emerge. These stop, start measures have cast a cloud over Q3 and Q4 growth expectations, while further exacerbating global supply constraints. Add to this persistent uncertainty surrounding the health of the Chinese property market and the outlook is becoming ever bleaker. Evergrande is due to pay another $148 million bond coupon payment today as another of its 30-day extensions expires. Failure to meet the revised deadline has sparked fears the troubled property sector could spill over into other financial markets. The AUD as a proxy to Chinese growth prospects remains vulnerable, and further uncertainty could derail the October recovery and force the AUD back toward 0.70 US cents.

Our attentions today turn to Chinese inflation data and US CPI inflation data for any signal a respite in transitory price pressures is on the horizon.