Asia Update: Evergrande Liquidation Order Fails to Sour the Mood

Evergrande Group, AUD/USD, USD/CNH Latest

Evergrande Liquidation Having Limited Impact Thus Far – USD/CNH Contained

Earlier this morning a Hong Kong court ordered the liquidation of Evergrande Group after failing to provide a concrete restructuring plan in the years following its first default in 2021. Shares of the stock and its subsidiaries were halted and the Group’s share price had already fallen around 20% in the lead up to the decision.

However when looking at the forex market, general sentiment appears unaffected -something that has also rubbed off on the Australian dollar.

USD/CNH continues to oscillate around the 200 day simple moving average, currently testing the area of confluence made-up of the 200 SMA and the late 2019 level of 7.1965. Despite the US dollar expected to see a move lower this year, shorter-term signals and strong fundamental data suggests it may be supported over the short to medium-term.

USD/CNH has given back some ground after strengthening in the wake of an announcement from Chinese officials to lower banks’ reserve requirements, freeing up more capital to stimulate credit markets.

USD/CNH Daily Chart

Source: TradingView, prepared by Richard Snow

Australian Dollar Struggles for Direction, Will High Impact Data Help?

The Australian dollar rose ever so slightly but remains within a sideways, consolidation pattern. Aussie inflation data has proven to be stubborn relative to other developed markets but is expected to ease for the fourth quarter of 2023.

The Australian dollar was previously on a downward trajectory as the economic outlook for China deteriorated. However the pair, appears content oscillating around the 200 SMA and the 0.6580 level. The MACD indicator suggests that bearish momentum may be slowing in the coming sessions but further upside will be difficult to come by given the support for the US dollar leading into the FOMC meeting which begins tomorrow. Volatility is expected to pick up in the lead up to the event meaning an attempt to trade outside the recent range is on the cards but continued momentum is doubtful.

Resistance appears at 0.6680 with support at 0.6460. In the meantime, intra-day levels linked to the high and low of the recent consolidation pattern (0.6621 and 0.6525) can be used as tripwires for a potential false breakout unless markets receive new key information from Jerome Powell and the Fed.

AUD/USD Daily Chart

Source: TradingView, prepared by Richard Snow

Major Risk Events Ahead

In the coming week we get Australian inflation data which is expected to print lower in Q4. We then get manufacturing data out of China which is still expected to remain in contraction with the PMI figure expected to be 49.2.

However, the main event this week is undoubtedly the Fed interest rate decision and press conference. Strong economic data in the US is likely to see the Fed take a more measured response to the market’s fairly aggressive rate cut expectations – downplaying the notion of an imminent rate cut.

Further afield, we get non-farm payroll data on Friday where there is an expectation of 173,000 jobs having been added in January with the unemployment rate ticking ever so slightly higher at 3.8%, up from 3.7%. A robust labour market remains a concern for the Fed as elevated interest rates ought to see unemployment rising, helping to cool inflation expectations. This has not unfolded as expected and has supported a case for a soft landing now that disinflation is taking hold. Unemployment below the 4% marker really tells a story of a strong labour market.

Customize and filter live economic data via our DailyFX economic calendar

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX