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– AUD supported by Evergrande news
– But Fed will be the next big test
– Hawkish Fed will trigger AUD weakness
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- GBP / AUD reference rate at publication:
- Place: 1.8831
- Bank transfer rate (indicative guide): 1.8172-1.8304
- Specialist money transfer rates (indicative): 1.8862-1.8737
- More information on obtaining specialized rates, here
- Set up an exchange rate alert, here
The Australian dollar has reportedly benefited from efforts to back struggling Chinese real estate developer Evergrande, although an imminent Federal Reserve update could disrupt the currency.
The mega developer’s future has been called into question amid claims it will not be able to repay the large bond repayments due Thursday, raising fears of a meltdown that could spread to other developers. Chinese real estate and institutions.
But Evergrande’s European stock price jumped midweek after learning the company had reached a debt deal on Thursday’s repayment.
Frankfurt-listed stocks are trickling 20%, bringing the annual loss to 81%.
“The mood has boosted the AUD and the NZD,†said Neil Wilson, chief market analyst at Markets.com.
Evergrande Group has two interest payments owed to bondholders on Thursday, one for $ 83.5 million and one for CNY 232 million.
Kenneth Broux, strategist at Société Générale, said the Australian dollar rebounded “with iron ore after Evergrande negotiates the coupon payment in yuan tomorrow.”
Evergrande said in an exchange document Wednesday that an interest payment due Thursday on one of its yuan-denominated bonds “has been resolved through negotiations with the clearing house.”
Wilson said helping the risk sentiment – to which the Australian dollar is particularly sensitive – was news that the Chinese central bank had boosted the injection of liquidity into the Chinese monetary system, in a bid to boost confidence.
The People’s Bank of China made 60 billion yuan available through a 7-day reverse repurchase agreement, with a similar amount being offered through a 14-day reverse repurchase agreement.
The reopening of Chinese markets after the long weekend went off without a hitch after the PBoC injected 90 billion yuan in net cash and Evergrande announced that it will make the coupon payments in yuan tomorrow after trading with onshore bondholders, â€Broux said.
The exchange rate of the British pound against the Australian dollar has fallen a quarter of a percent to trade at 1.8838 at the time of writing.
The exchange rate between the Australian dollar and the US dollar rose 0.20% to trade at 0.7240.
Above: Daily GBP / AUD (top) and Daily AUD / USD (bottom)
Currency transfers: get a retail exchange rate between 3 and 5% higher than that offered by the main banks, learn more. (Advertising).
Chinese markets have been closed for the past two days, ensuring that global stock markets have acted as a damper on recent concerns over the Chinese real estate sector and associated debt bubble fears.
The Australian dollar was lagging among the world’s major currencies at the start of the new week after China’s Evergrande group was seen heading for a default, with little indication that Chinese authorities would provide a lifeline. .
The crisis is just the latest setback in China’s economic growth which has lanes in a broader crackdown by authorities on tech stocks and the introduction of Covid-19 restrictions in some key regions and cities.
China’s real estate and infrastructure boom has long been the main driver of demand for iron ore, which is Australia’s primary source of exports and foreign exchange.
Although much of Australia has been stranded due to Covid-19, the country’s economy still benefits from a robust terms of trade account – thanks to iron ore – as a safety net.
Falling prices could hurt economic growth in the future.
Any easing of investor concerns about the Chinese real estate sector is therefore playing a positive role for iron ore prices and the Australian dollar.
“Fears that (domestic) crisis may be China’s Lehman moment are overstated in our view, but investors need more insurance with real estate group owing bondholders nearly $ 306 billion and to banks, â€Broux said.
The next major test for the Australian dollar will be the Federal Reserve’s Wednesday night update.
The Fed is expected to give its opinion on the recent economic slowdown in the United States while detailing its plans to end its quantitative easing program.
The program is currently expected to be reduced from November or December.
The actual market shift event, however, will be updates to the Fed’s interest rate forecasts, communicated via a chart plotting each individual FOMC member’s forecast for future interest rates.
If these points implied that a rate hike could occur as early as 2022, the dollar would rise and the Australian dollar would fall.
TD Securities analysis details a “hawkish” result that would trigger dollar strength as where the midpoint shows rate hikes from 2022 and up to 150bp of tightening by the end of 2024.
Significant upward revisions to 2022 as well as inflation projections for 2021 would also be provided in this scenario.
TD Securities assigns a 25% probability of such an outcome.
Their base scenario (60% chance) would see the midpoint show no tightening in 2022 (as before), + 50bp in 2023 (as before) and + 50bp in 2024.
There would be no definitive signal on the timing of the dropout, but the economy is on the cusp of making the required “substantial further progressâ€, even with some slowdown in growth recently.
The base scenario is expected to result in limited currency movements, providing an effective standstill outcome for Australian dollar exchange rates.
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