AUD: Risks against the Chinese yuan tilted firmly to the downside - Westpac

According to Sean Callow, Research Analyst at Westpac, risks on AUD against the Chinese yuan seem tilted firmly to the downside in coming weeks.

Key Quotes

“A steep rise in Australia’s commodity export prices has helped AUD/China since June, the probe of the 5.40 area should prove the 2017 highs, so long as the main commodity upswing is behind us. This could extend to 5.10 in Q4 if commodities do cool somewhat.”

“Broad USD weakness has also helped AUD/China, with 8 of the G10 currencies rising against USD since June. AUD was higher beta than CNY as usual.’

“But Westpac’s baseline view that the Fed will raise interest rates again in Dec argues against significant further USD decline, with pricing already only about 35% for the Dec 2017 hike.”

“In September, US political divisions over the debt ceiling and government funding should upset risk appetite. While USD could fall against the likes of JPY and CHF, AUD should underperform both majors and the less flexible Asian currencies such as CNY and CNH.”

“China’s clear policy preference for a stable yuan should also support it against AUD.”