The Australian Dollar is trading a tad lower this morning, off yesterday’s election inspired highs as a sense of normality returns to the Markets. In a delayed response to Friday stellar US NFP, the US 10 year bond yield has moved higher, settling at 1.434 % vs. Friday’s record low of 1.366%. In tandem, December US interest rate futures are now pricing in nearly a 30% probability of a December Hike, up almost 8 % from Friday’s close. On the back of the higher probability factor for a December US hike, we’ve seen subtle paring back of long Australian Dollar positioning overnight.
Looking past Thursday’s Australia Jobs Report(July 14 9:30 AM SGT) , there’s a very high level of uncertainty leading up to Friday’s China Q2 GDP(July 15 10:00 AM SGT) with market estimates nearing on Mainland’s year on year floor of 6.5 %;
Also, weighing on Commodity Currencies, Oil prices came under renewed pressure overnight with WTI toppling to a two-month low. IN addition to mounting speculation that hedge funds are reducing bullish Oil bets, it’s more likely the oversupply issue rearing its ugly head. But how much the China syndrome is factoring into this equation, some insight may be forthcoming Friday.
Without question, Brexit has added another layer of economic uncertainty which could pressure Mainland policymakers into another rate cut further weakening an already staggering Yuan, even more so, if this week’s China Q2 GDP print comes in below expectations. Given that growth in China is expected to have remained subdued in Q2, we could see a further pullback in the Australian dollar leading up to Fridays Data
Over the medium, China’s sliding currency will likely weigh negatively on commodity prices as investors will likely speculate that Chinese manufacturers will cut back on copper, oil and other tertiary materials they import. Given that oversupply concerns have kept a lid on commodity prices further, Yuan weakness and a possible drop in Chinese demand could ultimately weigh negatively on commodities.