USD/CNH

While the RBA’s final rate meeting of 2023 is the headline act on the Australian data calendar, movement in AUD/USD and USD/JPY are likely to be dictated by gyrations in US yields and USD/CNH on Tuesday.

Chinese economic activity is nearing stall speed with the government’s purchasing managers indexes (PMIs) falling further in November, surprising markets to the downside for a second consecutive month.

With USD/CNH and USD/JPY probing key support levels, we may require a break of them for AUD/USD to stand a chance of continuing its strong rally (which met strong resistance on Tuesday). Unless of course Australia is treated to an uncomfortably hot inflation report today, which could fan fears of another RBA hike.

Hong Kong’s Hang Seng and the USD/CNH are providing conflicting signals on the outlook for Chinese markets, providing a reminder for traders not to become too attached to a particular position, be it bearish or bullish.

We watched with bated breath to see if USD/CNH would break its 200-day average on Tuesday and pave the way for the next bout of US dollar weakness. Yet with that key level holding as support, it leaves room for some US dollar strength, a higher USD/JPY and weaker AUD/USD.

There was a risk that the RBA’s minutes were more hawkish than their November statement had let on, and this certainly seems to be the case. And hawkish minutes alongside a lower USD/CNH and USD/JPY have helped AUD/USD test a new cycle high today. Can it now gun for 66?

The latest episode of US economic exceptionalism may be coming to an end, resulting in US bond yields and US dollar coming off their highs. Major Asian FX names like the Japanese yen and Chinese yuan have been taking note, strengthening further against the buck on Friday.

AUD/USD is widely regarded as being a proxy for all things China: it’s economic performance, trends in financial markets and even the Chinese currency, the yuan.

Any attempt to support JPY through direct market intervention is unlikely to have success beyond the short-term when the fundamentals are so strongly working against it.

China’s August “data dump” has come in ahead of expectations, solidifying the view activity in the world’s second-largest economy is beginning to stabilise.

USD/CNH has broken out of the range it’s been in since July, signaling a potential period of consolidation, or even a reversal, from the prevailing bullish trend.

The Chinese yuan looks set for its largest gain against the US dollar since March, propelled higher a triple-whammy of factors.

AUD/USD downside has slowed despite a lot of negativity, bolstering the case for a near-term bounce ahead of key risk events later this week.

USD/JPY moved around 80% of its average daily range within the first 30-minutes of trade, in what appears to be a bout of yen buying. USD/CNH also broke above a key high.

Gold has pulled back to an important support zone between the 200-day averages, and with yields pulling back perhaps it can muster up the strength for a burst higher. USD/CNH is also on the cusp of a breakout despite earlier reports that China's state banks are actively selling the pair.

With policymakers continuing to rollout stimulus measures, it’s questionable whether the USD/CNH pop will last.

Near-term moves in US bonds will have big implications for USD against the JPY and CNH.