AUD/USD falls to 0.64 amid china tensions

The AUD/USD currency pair remains subdued and hovers near the intraday low of 0.6407 as a sense of risk aversion takes hold in the early hours of Tuesday.

The current weakness observed in the Australian dollar can be attributed to multiple factors. Firstly, the surge in US Treasury bond yields to levels not seen in years has put pressure on the Australian dollar. Coupled with this, concerns stemming from the US banking sector have contributed to the downward momentum. Additionally, lingering apprehensions related to China’s economic situation have further influenced the situation.

A significant development involves S&P Global Ratings downgrading a number of US banks. This action underscores the adverse effects of higher interest rates and a decline in deposits. This move, initiated by Moody’s earlier in August, has notably contributed to the prevailing risk-off sentiment.

As a result, US Treasury bond yields have climbed to their highest levels since November 2007, reaching 4.36%. This coincides with a fading of the S&P500 Futures’ two-day recovery from a nine-week low.

China’s proactive measures to bolster its post-COVID economic recovery have not managed to impress market participants, and this is weighing on the AUD/USD pair due to the intertwined trade ties between Australia and China.

In terms of recent events in China, the People’s Bank of China (PBOC) decreased the one-year Loan Prime Rate (LPR) from 3.55% to 3.45%, while keeping the five-year LPRs steady at 4.20%. In addition, Chinese state media Xinhua reported that authorities intend to offer subsidies for fertilisers and pesticides in the northern region. The weekend news also indicated policymakers’ intentions to inject more liquidity into the Chinese economy.

Counteracting these developments, the Financial Times (FT) reported China’s ambitions to compete with the Group of Seven (G7) nations. This was evident during the BRICS meeting, where representatives from Brazil, Russia, India, China, and South Africa engaged. Nonetheless, escalating tensions between China and Taiwan have added to geopolitical concerns, although these haven’t garnered significant attention given the cautious sentiment prevailing ahead of crucial data and events scheduled for this week.

In summary, the limited domestic economic calendar is combining with market unease ahead of prominent events such as August’s Purchasing Managers Indexes (PMIs), July’s Durable Goods Orders, and central bankers’ speeches at the annual Jackson Hole Symposium. These factors are likely to influence a potential rebound in the AUD/USD pair. Furthermore, the US Existing Home Sales for July and the Richmond Fed Manufacturing Index for August, along with speeches from mid-tier Federal Reserve (Fed) officials, will guide the intraday movements of the Australian dollar.