AUD/USD snaps four-day downtrend near 0.7250 on PBOC news, focus on Evergrande, Fed

  • AUD/USD picks up bids to refresh intraday top, keeps bounce off monthly low.
  • PBOC adheres to heavy cash injection, keeps benchmark rate unchanged.
  • Evergrande hints at coupon payment, RBA’s Debelle stays hopeful over China’s ability to tame market risk.
  • News concerning China, US debt limit may entertain traders ahead of Fed decision.

AUD/USD stays firmer around 0.7265, up 0.43% intraday during early Wednesday. In doing so, the Aussie pair consolidates the previous four days’ losses after headlines from China triggered a risk-on mood.

Even as the People’s Bank of China (PBOC) left the benchmark cash rate unchanged near 3.85%, the heavy cash injection of around 110 billion Chinese yuan hints at the dragon nation’s ability to avoid a liquidity crunch should Evergrande default.

Earlier in the day, the International Monetary Fund’s (IMF) Chief Economist Gita Gopinath also sounded optimistic over China’s ability to tame the fears emanating from the real-estate firm.

Market sentiment also improves as China’s struggled real-estate giant hints at paying the coupon on onshore bonds at the September 23 expiry.

On the same line were comments from the Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle who expects, per Reuters, that Chinese authorities might well allow a limited default to occur, their ‘tolerance’ for default is higher than in previous years as long as the consequences are limited. 

Furthermore, the hopes of stimulus, as hinted by House Speaker Nancy Pelosi, as well as the US Democratic Party’s push to suspend the debt ceiling. Recently, the US House votes 217-207 to favor temporary government funding and debt limit increase debate.

Amid these plays, S&P 500 Futures reverses early Asian losses, up 0.25% by the press time whereas US Dollar Index (DXY) remains pressured by not tracking the mildly bid US 10-year Treasury yields.

Having witnessed initial market reaction to the PBOC event and Evergrande updates, AUD/USD traders may wait for the Fed for fresh impulse. However, headlines from the US, as the UK PM Johnson visits the White House, will join the covid updates and Beijing-related geopolitical chatters to direct intermediate moves.

Read: Fed Preview: Three ways in which Powell could down the dollar, and none is the dot-plot

Technical analysis

Although monthly horizontal support restricts immediate downside near 0.7220, a confluence of 20-day and 50-day simple moving average (DMA) challenges the bulls around 0.7335.

Our Source

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