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CNY impacting Chinese equity market

Five markets in focus today: USD/CNY, AUD/USD, Spot Gold, Fortescue Metals and QBE Insurance.

USD/CNY

Probably the most talked about currency pair on the trading floors right now. Moves in the CNY are having a big impact on the Chinese equity market, and while most feel the big falls in the A50 cash and CSI 300 were down to talk of Chinese investment banks curbing lending to the property space, the moves in CNY also are having a major impact.

A number of institutions within China have issued a sizeable amount of USD denominated debt, hoping the pair would continue to weaken and thus benefit from CNY appreciation; however that is not happening, so there would be many sitting on some sizeable losses right now. Some see the recent weakness in the CNY as a political message, with US President Obama meeting with the Dalai Lama, while some just see the CNY mirroring the increased liquidity in the money markets (as seen with the seven-day repo falling of late). Personally I feel the moves are overextended and I would start to look at small short positions on USD/CNY which, after a period of consolidation, should start to modestly depreciate.

AUD/USD

The pair has shown good support under the 90 handle and is looking to test strong resistance at 0.9079 (the 38.2% retracement of the 11.3% sell-off in October to January) and a daily close above this level could see the pair target the 92 handle. While I still see the pair headed lower this year, until we can see short term US treasury yields heading higher, we are not going to see good flows into the USD. Traders are now keen to see Thursday’s Aussie private capex numbers as the key catalyst.

Spot Gold

A close above 1337.83 (the 61.8% retracement of the 1433 to 1182 sell-off) would be welcomed by the gold bulls and would therefore put the October 28 high of $1361 in play. Looking at trend indicators such as the MACD on the daily chart, it shows the pullbacks are buying opportunities, however a close above 1337.83 (1337.29 now) would bring out more momentum focused traders.

Fortescue Metals (FMG)

It should be a weaker open for iron ore names today, with the spot price of iron ore falling 2% to test the year’s low of $119.90. A break of this low for iron ore would see last year’s low of $110.40 come into play.

QBE Insurance

There are a host of ASX 200 companies reporting today including OSH, HZN, AGO, FLT and IOF, however QBE will probably get the lion’s share of attention given its history of big announcements at earnings reports. The market isn’t expecting a major downgrade this time around, but a detailed update on managements cost out program should be on the cards. Look out for narrative around margin composition.

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