China concerns weigh on risk

After a subdued start for the major FX pairs this morning, sentiment has started to pick up a bit with some of the gaps created at the open of today’s trade being filled.

Risk assets have focused on three key issues this morning; the non-farm payrolls, escalating Russia/Ukraine fears and disappointing China data. This was enough to see AUD/USD trade to around 0.904 early on before recovering and filling the gap.

Since then it has been mostly sideways trade for most FX pairs with traders waiting for a bit more clarity particularly after China reopens. Talk around China’s growth target continues with reports suggesting a 7.5% GDP growth rate is guaranteed. Perhaps these comments are aimed at calming some fears after the disappointing data from the weekend.

Of comfort is the fact that inflation remains well under control, suggesting the PBoC has room to act if need be. However, in the near term it seems price action will remain choppy at best and we might see AUD/USD head to test the 0.90 region.

Jobs numbers on Thursday will be the week’s key release for the AUD. The recent trend has been remarkable weakness in the domestic jobs space and we’ve even heard from the RBA recently suggesting jobs numbers are a backward indicator.

Yen could benefit from risk aversion

USD/JPY continues to hold on to the 103 level and I suspect this could be the pair to watch, particularly if the risk trade continues to wane.

Risk aversion could accelerate if the Ukraine situation escalates further. Russia continues to increase its presence in the Ukraine despite opposition by the international community. Ukraine is also set to hold a referendum on 15 March and this could see the investment community reluctant to push risk higher. In such an event, USD/JPY could very well drop back below 103 in the near term with the yen regaining some ground.

In the background we’ll have the BoJ meeting which should bring interesting commentary as we head into the implementation of the sales tax hike.

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