AUD – Australian Dollar
Despite a news-rich day and an improvement in risk appetite, the AUD struggled to break free from the shackles of risk brackets, not stretching beyond 0.73 US cents. After opening below 0.7230, the Aussie found support throughout the domestic session as risk demand improved. Chinese real estate developer Evergrande survived one more day and the PBOC announced an injection of 120 billion yuan into the banking system, a sign that it is ready to support financial markets during the most recent crisis. After moving above 0.7250, the AUD followed sideways for the rest of the day as traders dismissed larger bets ahead of the FOMC policy update. The Fed has offered little to disperse current market expectations. Despite a relatively hawkish assessment of current economic conditions and a further step towards reduction, the market oddly forced the USD lower in the moments immediately following the meeting, allowing the AUD to leap to intraday highs at 0. , 7290. The rally was short-lived, however, and investors called off the move and Fed Chairman Powell gave his speech after the meeting. Coming back towards 0.7250, the AUD opened in roughly the same position as yesterday, buying 0.7237 cents US.
Our attentions remain today with the Evergrande saga and whether it can redeem a bond coupon of 84 million US dollars. A default without central support could lead to another risk aversion movement, creating turmoil in financial markets.
Price action in forex markets was largely dampened by trade on Wednesday despite many headlines to guide direction. Having survived another day, the Evergrande saga did little to change the underlying risk narrative as markets offered little response to the Fed’s policy update. and the FOMC. Policymakers have affirmed their commitment to reduce QE as long as the recovery towards policy goals continues, indicating that an announcement could be forthcoming in December to start cutting bond purchases in December, with a liquidation expected by mid-2022. The positive outlook was confirmed by a change in the Fed’s dot plot. Two other members have expressed their expectations for a rate hike, with half of the board now of the opinion that a rate hike next year would be appropriate. Despite this hawkish assessment, the pace of monetary policy normalization is in line with market estimates and yesterday’s meeting did little to change the spray. The USD index moves little as the euro tests a break below 1.17 and the pound slips below 1.3650.
Our attentions remain today with the Evergrande saga as a catalyst to boost risk direction as the Bank of England policy meeting could trigger cable volatility. While we wouldn’t expect the MPC to move away from the current political platform, markets are well tuned to any language hinting at a move towards tougher political conditions in 2022.
CAD / USD: 0.7170 – 0.7320
EUR / EUR: 0.6150 – 0.6230
GBP / AUD: 1.8620 – 1.9020
AUD / NZD: 1.0270 – 1.0380
CAD / CAD: 0.9190 – 0.9290