FX Watch: AUD loses ground on China PMI miss, RBA non-event turns focus to Bank of Canada FX Watch: AUD loses ground on China PMI miss, RBA non-event turns focus to Bank of Canada FX Watch: AUD loses ground on China PMI miss, RBA non-event turns focus to Bank of Canada

FX Watch: AUD loses ground on China PMI miss, RBA non-event turns focus to Bank of Canada

Forex 5 minutes to read
Charu Chanana

Market Strategist

Summary:  USD back on the front-foot amid risk-off spurred again in Asia by China’s PMI miss. Country Garden’s last-minute repayment of the dollar bond coupon also brought the focus back on the inadequacy of measures from Chinese authorities, weighing on AUD. The RBA meeting was a non-event, and AUDUSD will need further China boost or fresh YTD lows may be threatened. Sterling supported by September rate hike bets, masking the economic concerns that are likely to rise into Q4.

AUD remains more exposed to China

After a quiet overnight session due to the Labor Day holiday in US and Canada, risk off sentiment was sparked again in Asia. Key catalyst was China sentiment turning bad again, with a miss in Caixin services PMI and a near-miss in Chinese developer Country Garden’s coupon payments.

China’s Caixin services PMI fell to 51.8 in August, its lowest levels this year, from 54.1 in July. The numbers reignited concerns that China’s services sector is weakening after last week’s official data had shown similar trends.

Meanwhile, Country Garden entered the final hours of a grace period to pay interest on dollar bonds. While the payment was eventually made, markets were not relieved as the company has a lot more US dollar debt that it will need to work through. The latest efforts from authorities to arrest the slump in the property market helped markets rally at the start of the week, but the measures are skewed to only support tier-1 and stronger tier-2 cities. Smaller locations make up more than two-thirds of the Chinese home sales, and they continue to be in doldrums. Country Garden, with its bigger exposure to low-tier and weaker tier-2 cities, may not be able to gain much from the policy support measures.

Overall, China’s measures so far are a mere relaxation of over-regulation that can stop or slow down further damage, but not particularly stimulus actions that can reverse the damage. The hustle between weak high frequency data and policy actions is likely to continue.

This led to a broad risk-off sentiment in Asia, taking the dollar back higher with AUD being the underperformer. AUDUSD slumped to 0.6420 from 0.6460+ levels at the Asia open, and the RBA announcement was a non-event. The central bank kept its cash rate unchanged at 4.10% for a third meeting in a row, while still maintaining a tightening bias, as we discussed in the FX Watch yesterday. Still, warnings on the economy and the labor market ramped up, with the statement also hinting at the increased uncertainty around the Chinese economy. But the market was left without any fireworks in typical Lowe style, at the Governor’s last meeting.

AUDUSD may see 0.64 level as the first key barrier, break below which brings the YTD low of 0.6365 in focus. Q2 GDP is out tomorrow and may confirm that economic momentum is weakening. Bloomberg consensus expects 0.4% sa QoQ and 1.8% YoY from 0.2% and 2.3% in the first quarter. Of larger concern maybe the jobs numbers next week, with RBA warning that unemployment rate may increase to 4.5% in late 2024. A sharp increase from July’s 3.7% could mean that RBA would be expected to end its rate hike cycle.

Market Takeaway: AUDUSD may target the YTD low of 0.6365 if China sentiment turnaround is not enough to clear the 0.6522 triple top.

GBP struggling to maintain uptrend

The UK national data office – the Office for National Statistics (ONS) – revised the 2021 GDP growth higher by 1.7%. That means that the UK returned to pre-pandemic growth much earlier than believed and that the revision leaves Germany exhibiting the “sick man of G7” symptoms. A better GDP profile may be a good news for UK assets for now but that masks the troubles brewing for the UK economy in the months to come.

BOE Chief Economist Huw Pill’s speech last week underscored a less hawkish BOE outlook, but markets are still expecting two additional rate hikes with a September rate hike priced in with near 90% probability. Final August PMIs will be due today and any downward revision can potentially shift focus to economic concerns. Markets remain complacent about the medium-term trajectory for the UK economy.

Market Takeaway: GBPUSD sideways-to-higher for now with Fed likely to pause, ECB rate hike in question but BOE priced in to hike in September. But weakness could come into Q4.

Bank of Canada meets tomorrow and risks are tilted dovish

As noted in the FX Watch yesterday, Bank of Canada is expected to leave the overnight lending rate unchanged at a 22-year high of 5% after two back-to-back hikes in June and July. While Canadian economy is more closely linked to the US economy and oil prices, any optimism fuelled by these has waned with Q2 GDP turning negative and risking a technical recession. BOC had paused the tightening cycle earlier than other central banks at the start of the year, only to restart in June. There are signals that BOC may remain a leader in the easing cycle, and any hints could prove pivotal for CAD. Labor data for August is also out on Thursday and another decline could further spook recession concerns.

Market Takeaway: USDCAD printed over 3-month highs of 1.3645 and next level to watch will be April high of 1.3670.


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.