/CNY: Westpac: Aussie Reliant On Global Risk Mood

Westpac note that "AUD/Yuan has mostly been driven by the broad swings in AUD/USD this year, but so far in November, the Aussie has outperformed a wide range of Asian currencies, including the yuan. The Aussie revival follows sharp decline in Sep and Oct, driven in large part by global equity volatility and the RBA's dovish turn, which culminated in the 3 November cut in key interest rates to 0.1% and a A$100bn program to buy 5-10 year bonds. The RBA has made clear that the cash rate won't rise for at least 3 years and yields along the curve should remain historically low. In contrast, China's benchmark 1 year loan rate has been 3.85% since April. The inclusion of China government bonds in key indexes adds to the fixed income demand for CNY. The yuan is also supported by international border closures, which shrink China's services deficit as outbound tourism and business travel is curtailed. Still, AUD remains a high beta play against USD which we expect to be under pressure into 2021 as the Fed struggles to compensate for inadequate fiscal support. Moreover, vaccine news should continue to bolster equities, helping risk-sensitive AUD return to CNY4.95 by year-end."