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AUD/USD has dropped to the lowest level since last Thursday as tested the 0.7165 zone during the early Tuesday. Economists at Westpac believe a correction to below 0.70 seems plausible given news coming from China.

Key quotes

“Despite the positive risk sentiment, the A$ appears to have been well contained by further indications that Chinese imports of met and thermal coal have been banned (joining wheat, beef and wine to varying degrees). This is important given that 22% of Australian thermal coal exports went to China in the last year and 28% of met coal. Prices have dropped sharply with the second Queensland met coal swap down $20 over the last week.” 

“We stick to the view that the near-term risks for the A$ are lower and a dip below 0.70 through end October/early November is still possible. However, near-term, the A$ looks well contained by 0.7260 on the topside and 0.7124 on the downside.”

“RBA Governor Lowe’s speech/employment Thursday plus a list of geopolitical risks including the Australia/China trade; US fiscal aid; US election risks; UK/Europe shutdowns; Judge Amy Coney Barrett hearings; the EU Summit; US earnings etc. should cap.”