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TALKING POINTS – AUSTRALIAN & NZ DOLLARS, CHINA STOCKS, FED-SPEAK

  • Australian, NZ Dollars drop, echoing Chinese stocks plunge
  • US Dollar looking to Fed officials’ comments for a lifeline
  • Pound and Euro may ignore UK claims, German ZEW data

The Australian and New Zealand Dollars underperformed in Asia Pacific trade, following Chinese stocks downward. The benchmark CSI 300 index of shares listed in Shanghai and Shenzhen fell for a fourth consecutive day, touching the lowest level in two months.

The recent selloff appears to reflect worries about monetary tightening. The Hong Kong Monetary Authority (HKMA) has injected nearly US$1.7 billion over the past five days to arrest selling in the local currency, a form of monetary tightening. Meanwhile on the mainland, the one-year prime loan rate has advanced to the highest level since October 2015.

China is the top source of export demand for Australia and New Zealand. A rapid rise in borrowing costs there may translate into negative knock-on effects for growth in the two countries, bearing down on inflation and undercutting scope for the RBA and the RBNZ to pursue higher interest rates of their own.

UK Jobless Claims data headlines the European economic calendar. A pickup in wage inflation may offer a bit of lift to the British Pound but traders are likely to wait for CPI figures later in the week before showing lasting directional commitment. Germany’s ZEW survey of investor confidence is likely to pass without leaving much an impression on the Euro.

Later in the day, comments from Fed officials will enter the spotlight. Those from San Francisco Fed President John Williams may carry the most weight after he was named to replace Bill Dudley at the helm of the US central bank’s influential New York branch this summer. Hawkish overtones may be interpreted as representative of the consensus on the FOMC committee, boosting the US Dollar.

See our quarterly US Dollar forecast to learn what will drive prices through mid-year!

Asia Pacific Trading Session

Australian, New Zealand Dollars Sink Alongside Chinese Stocks

European Trading Session

Australian, New Zealand Dollars Sink Alongside Chinese Stocks

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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