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  • The rise in Covid uncertainty in addition to the significant deceleration in Chinese economic activity have both been weighing on the Aussie, which keeps reaching new lows against the US Dollar.
  • The chart below shows that Chinese equities, which have been under pressure since their February peak (which corresponds to the peak In Chinese economy), have shown strong co-movement with AUDUSD in recent years.
  • Hence, we will see if today’s 50bps cut in RRR and potential further easing in China policy will limit the downside risk on China-sensitive currency such as the Australian Dollar.
  • AUD is the most undervalued currency among the G10 world according to our BEER valuation model (undervalued by over 16%).

Source: Bloomberg/MNI