‘Risk on’ for currencies

The China reopening story is back on the front pages of the financial news this week as the pace of reopening continues. The weekend saw further easing of travel restrictions giving cause for a further push higher in the Chinese stock market and the Chinese Yuan. The China 50 is up a whopping 22% since the lows last seen in November 2022. But even more significant is the more accessible Hong Kong’s Hang Seng which is up a staggering 45% in the same period. Major structure daily resistance around the 19000 zone has now been breached and is likely to act as support. The exuberance of the China story is filtering through into the ‘Risk ON’ currencies. The Australian dollar, which is often seen as a proxy for the Chinese Yuan is surging against its peers. Oil prices, which are often seen as a barometer for Chinese growth, also seem to have found support against the backdrop of a possible global recession. This in turn is positive for the Canadian dollar which is also finding support from the strong job numbers last week.  So this week kicks off in a ‘risk on’ mood and could well continue for the next few days and weeks ahead.

‘Risk on’ means we buy AUD, CAD, and NZD and sell the USD.  A soft US CPI print this week will add fuel to these currency plays. The momentum meter chart shows the strength and weaknesses of the major 8 currencies. We can see the USD is clearly on the back foot. The AUD and the CAD are the strongest. Trend followers looking for an ‘edge’ are better suited to buy strong and sell weak, using price action to assist on entries.