Westpac On AUD/Yuan

Westpac note that "after its fleeting dip below 4.00 in the March panic, AUD/Yuan has trended strongly higher in line with improved global risk appetite. Since late July it has spent time above 5.00, its strongest levels since Dec 2018. The pair is positively correlated with optimism over the global recovery, even if China's growth is a key source of that optimism, given A$'s greater flexibility. China's economic recovery remains focused on industrial activity rather than the consumer, but such a mix of course benefits Australia, whose iron ore exports to China underpin ongoing trade surpluses. We believe China is on track for a robust recovery, with industrial production already up 5.6%yr in August and coronavirus cases remaining low. The yuan has been supported by the PBoC not opting for the ultra-expansionary monetary policy of most central banks and by global travel restrictions which shrink China's services deficit. However, USD/CNY should consolidate in coming weeks, partly as US election uncertainty tempers yuan gains. AUD/CNY should push back to 5.00-5.05 multi-week (USD/CNY 6.73-6.83 and AUD/USD around 0.74). But equities will continue to spark gyrations in AUD/CNY."