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Has the market gotten over Evergrande/China fears already? Not quite.
The perceived calm so far today may just be a light reprieve before the next storm hits, and that will depend on the response by the PBOC and Chinese officials tomorrow.
There are bigger things at play in China right now and that poses some fresh risks to global markets as the financial landscape looks to have changed.
While there is a modest bounce in risk trades so far today, I’m not entirely convinced just yet – especially in the likes of CAD/JPY and AUD/JPY.
I might be wrong and the latest bounce may extend tomorrow as risk recovers further, but I’d wait on the latter part to be more certain of anything right now.
Besides that, AUD/NZD has crawled its way back above its key hourly moving averages at 1.0315-30 as the RBNZ plays down expectations of a 50 bps rate hike next month, keeping the kiwi among the laggards today.
I still view the pair as a sell on rallies after the latest downdraft stalls at 1.0300, arguably one of the more straightforward ones amid a continued divergence play. Even without a 50 bps rate hike in October, the RBNZ is still far ahead of the RBA at this stage.
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