Risk aversion weighs on Australian dollars and kiwi

The Australian dollar and the Kiwi dollar have fallen victim to growing concerns about the strength of the Chinese economy as the fallout from the expected default of the China Evergrande group continues.

A secondary factor is the expectation of the US Federal Open Market Committee (FOMC) to provide hints on monetary tightening later in the week.

As the New Zealand dollar slipped from 70.64 cents US on Friday, September 17 at the end of the day to 70.21 cents US on Tuesday morning, the Australian dollar fell from 72.91 on Friday morning to 72.65 on Tuesday morning.

The New Zealand dollar could “correct more”

“The NZD / USD has returned to its range for several months after the failure of a breakout to the upside and looks likely to correct even lower in the coming week. The near-term target is 0, 6945, then 0.6890, ”Imre Speizer, Westpac New Zealand chief strategy officer, wrote in a note.

According to Speizer, the FOMC could provide “enough clues” of tightening at this week’s meeting to further boost the US dollar.

Besides the overall risk aversion of investors in light of the Evergrande crisis and the FOMC’s expectations of lower commodity prices, the Australian dollar was also weighed down by falling commodity prices. Futures contracts on iron ore, one of Australia’s top exports, fell below $ 100 a tonne as China stepped up restrictions on steel production.

Record short AUD / USD positions

Experts suggest it will be a bad week ahead for the Australian dollar. “Short-term risks to the US dollar are higher as regional asset volatility persists and markets look to the next FOMC policy,” wrote Catherine Birch, senior economist at Australia and New Zealand Banking Group ( ANZ), in a note.

“It is far too early to suggest that the AUD pull-up could mean the worst is over, and especially with the FOMC just ahead, although we note that the FX futures market positioning data released is over. last friday by IMM [International Monetary Market] in Chicago shows record net speculative short positions in AUD / USD – sometimes a signal that a reversal should not be far away, ”Ray Atrill, head of foreign exchange strategy at National Australia Bank, wrote in a note .

The Japanese yen benefited from the risk aversion sentiment in global markets. The low-yielding currency outperformed the US dollar even better. The USD / JPY slipped below 110 and by noon on Tuesday the currency pair was at 109.62, after the Japanese yen gained 0.5% on Monday (September 20). Despite feelings of risk aversion, Atrill said, the US dollar did not “perform as well” as the Japanese yen.

Safe havens win

Likewise, according to Westpac analysts, safe haven currencies like the Swiss franc and Japanese yen were the biggest winners on Monday.

Read more: Australian dollars and kiwifruit threatened by the collapse of Evergrande

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