China is leading the recovery with equities bouncing off a two month low. While we are seeing a recovery in equities, there hasn’t been any real change in sentiment and this suggests there is some bargain hunting at play here. In fact, if we look at the risk currency price action today, most major risk currencies have been flat to lower.
AUD/USD has been closely watched this morning and finally looks like it is on the verge of giving up its grip on the 0.93 handle. At the start of Asian trade there were comments suggesting Australia was put on ratings watch by S&P doing the rounds. However this was clarified later on with S&P saying Australia’s AAA rating was safe although there are some external risks to the economy. The RBA’s monetary policy minutes didn’t bring anything new as expected, and in fact they are a little bit stale considering they are from the policy decision which took place before the budget announcement last week. Essentially, the fiscal tightening will only make the RBA’s job harder from a monetary policy perspective.
At the same time we have escalating China concerns which have resulted in a sharp commodities slump. RBA Assistant Governor Debelle was on the wires earlier saying lower capital inflows may result in a drop in the AUD. However, he balanced it out by saying there is still good demand for Australian debt. This has probably been the reason why the AUD had been holding up so well. From a trade perspective, AUD/USD is looking increasingly compelling for shorts and a potential close below the uptrend line which comes in at around 0.932 could signal further near term losses.