Forex - AUD/USD, NZD/USD, USD/JPY Flows: China PMI data in focus, AUD/USD and NZD/USD ending the year around breakeven


 00:05 (GMT) 31 Dec

  [Forex Flows]

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China PMI will be the data of note in the final Asian trading session for the year. Our forecasts for manufacturing and non-manufacturing are slightly higher than the market, so that could help stabilise weakness in riskier assets from being carried over from the NY session. US equities came under pressure on Monday. USD/JPY weakness could stabilise.
USD softness still persistent early Tuesday. AUD/USD bulls having a tough battle around 0.70 but might make it through if China data is significantly better than market expectations and a breakout might be easier than usual given thinner volumes, particularly with Japan trading centres closed today. However, it seems more likely for AUD/USD to gravitate around 0.70 on a modest data beat and the lack of incentives to take on new positions over year-end.

AUD/USD, NZD/USD, USD/JPY Flows: China PMI data in focus, AUD/USD and NZD/USD ending the year around breakeven (0101-QDVF-C03)

AUD/USD still looks fair simply on 10yr yield spread amid the outperformance of Aussie yields, as market pricing for RBA easing has been pared back. Hopes are likely based on positive external developments lately, on trade deal and China's stimulative policies rather than on domestic drivers which could pressure the RBA into easing next year once we have data releases resuming.

AUD/USD, NZD/USD, USD/JPY Flows: China PMI data in focus, AUD/USD and NZD/USD ending the year around breakeven (0101-QDVF-C01)

In the wider view, AUD/USD has likely ended the long-term downtrend. This might indicate the beginning of a wide sideway range rather than a clear uptrend with RBA easing view still expected. AUD/USD is very close to erasing all losses YTD, after starting the year at 0.7042. AUD/USD has seen strong gains in January from 2017 to 2019, though that is hardly any case for further gains in 2020 as its record in January looks much less clear when going back further in time.

AUD/USD, NZD/USD, USD/JPY Flows: China PMI data in focus, AUD/USD and NZD/USD ending the year around breakeven (0101-QDVF-C02)

AUD/NZD returns to 1.04 level but yield spread suggest upside might see less resistance. Together with the lack of diverging drivers until the New Year, 1.04 floor is likely to hold. NZD/USD has done just enough to wipe out losses seen YTD, and might take a breather for now following the stretched rally.


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