Chinese Coal News and Yen Reversal: Good News for Australia and New Zealand Dollar Holders?

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Australian and New Zealand dollars surged Thursday after China reduced restrictions on Australian coal exports. At the same time, the Japanese yen plunged to its lowest level against the Aussie since mid-2016.

Analysts at JPMorgan said, “We see infections peaking around the Lunar New Year holiday in late January, which should set up China for a sizable recovery from next quarter.”

“We now forecast growth to jump to a 10.4% annual rate in 2Q23 – previously 6.1% – and remain at a strong 6.8%ar during 2H23.”

This remarkable move saw the Aussie jumping 1.7%, taking it to within a whisker of the 200-day moving average at $0.6850, a break that would be considered technically bullish.

The kiwi dollar also experienced an increase in value overnight. However, it still lagged behind its Aussie counterpart by 0.7%, currently at $0.6292.

These movements indicate renewed confidence in Australian and New Zealand economies amidst global market instabilities caused by Covid-19 cases increasing worldwide, particularly in Europe and North America, where lockdowns are being enforced once again as winter sets in across much of the northern hemisphere.

The Aussie got a further boost against the euro after French inflation data came in well below expectations. The pair plunged 1.1%, taking the value of the Aussie to A$1.5517, its lowest level against the euro. This latest drop brought the Aussie’s gains against the euro, making it one of the best-performing currency pairs for Australian investors.

Following the soft reading on German consumer prices, which saw investor confidence dip, analysts trimmed their forecasts for EU-wide inflation. This sent shockwaves across Europe, as investors feared low inflation could ultimately lead to deflation and stall economic growth.

Yields on Australian 10-year paper dived 16 basis points overnight to 3.84%, while futures have gained 22 ticks this week to 96.1450. This marks a positive end to the week for Australian debt markets, with investors weighing up global market uncertainty against expectations of a recovery in growth in China.

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