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On the day, the market has taken on a mixed tone, with stocks remaining marginally higher while bond rates remain uncertain.
As a result, the dollar is also looking a bit uneasy, hovering marginally lower on the day.
Given the above, the overall risk sentiment appears to be cautious as we await stronger guidance later in the day.
The EUR/USD is trading at 1.1300, although the recent decrease in purchasing interest has proven to be quite brief. Aside from that, the AUD/USD may be heading for a substantial pullback, although staying above the 23.6 retracement level of the previous downswing around 0.7125 will be critical today.
Other than that, oil is down slightly as market excitement fades, but the break back over $70 is encouraging for purchasers to preserve the faith for the time being.
China
Kaisa, a Chinese developer, also fails to make bond payments. Kaisa is China’s second-largest offshore debt holder behind Evergrande. Trading in Kaisa shares was halted early today, according to sources, since the company is unlikely to have reached its $400 million offshore debt due on Tuesday.
Like Evergrande’s case, earlier this week would result in a cross-default on the firm’s offshore bond assets, which amount to about $12 billion.
So far, the fallout has been mostly confined owing to the assistance of local authorities. Policymakers have said unequivocally that any negative impact can be readily contained. This has helped to calm domestic markets slightly.
The national and municipal governments’ actions have undoubtedly been comforting to investors. However, like in the previous example of Evergrande jitters, it doesn’t matter until it does.
For the time being, contagion concerns are being handled. However, keep in mind that this is one bad location that may weigh on sentiment.
AUD/USD
• AUD/USD is slightly higher, and buyers are looking for a greater retracement.
• The currency pair is trading slightly higher on the day, around 0.7130.
• So far this week, the pair has maintained a small rebound off support near 0.7000. This is mostly due to better risk sentiment over the last two days, albeit sentiment is more mixed today. As positive as the Aussie bounce is. The risk rebound is encouraging, but the Fed-RBA difference, in my opinion, is more important.
AUD/USD purchasers might take solace in the fact that Fed rate rise forecasts have almost totally been priced in at this stage. As a result, any significant tailwind for the dollar may be relatively restricted.
• Don’t count out future gains, especially if the Fed sends clearer signals to accelerate tapering and express a willingness to raise rates before the middle of next year.
However, following five weeks of falls, the Aussie may attempt to retrace a little. The dip witnessed a move from above 0.7500 to 0.7000, suggesting that a little correction is possible.
The first major point of contention will be the 23.6 retracement level around 0.7125. That is the key level to keep an eye on as the trading day comes to a conclusion today. If it remains above that level, buyers may have some leeway to move towards 0.7200 next.
Europe:
On the day, European markets are off to a sluggish start.
Eurostoxx -0.1% • DAX -0.2% • CAC 40 -0.1% • FTSE flat • IBEX -0.4% • FTSE 100 -0.4%
This comes as US futures pare early gains, with the S&P 500 futures presently up only 0.2 percent. The general market attitude is mixed, with European indexes appearing unimpressed. Meanwhile, Treasury rates are falling, with 10-year yields already down 2 basis points to 1.458 percent.
That’s keeping the atmosphere in FX under wraps. The dollar is slightly lower, although the moves are minor so far today.