Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Global markets hit by Deepseek scare
Global markets were hit by a massive, tech-led sell-off on Monday after positive results from Chinese AI start-up Deepseek caused investors to worry about the competitiveness of other leading AI stocks.
The Nasdaq, which has gained strongly on the so-called AI trade, tumbled 3.1% while AI chipmaker Nvidia fell 17%.
In FX markets, risk-sensitive currencies like the AUD were pressured, with the AUD/USD down 0.4% as it fell from one-month highs.
The NZD/USD fell 0.3% as it also dropped from one-month highs.
The USD/JPY was down sharply with the pair losing 1.0% to fall to the lowest level since 18 December.
USD/CNH climbs from seven-week lows after PMI miss
The USD/CNH was also stronger with the pair pushed higher by weaker PMI numbers on Monday.
Looking forward, more PMI numbers are due later this week,
With the help of a front-loading of exports driven by possible tariff rises, we anticipate that the Caixin manufacturing PMI, which polls more SMEs and exporters in China’s eastern coastline area, will stay at 50.5 in January, unchanged from December.
Although the Lunar New Year holiday and fewer working days in January this year greatly distorted the decline, export growth to Korea fell to -1.9% year-over-year in the first 20 days of January from 15.0% in December, while import growth from Korea fell to -4.9% from 12.4% in the same period.
According to our baseline, the risk is skewed to the upside, but potential policy intervention draws a line at 7.50.
To the downside, next support sits at 200-day EMA at 7.2206, providing opportunity for USD buyers.
December-quarter inflation key for Aussie
Australian CPI will be released this Wednesday.
In Q4, we predict that the headline and trimmed mean CPI will both rise by 0.4% on a quarterly basis.
Noting that the argument has shifted in recent months from a sluggish economy “requiring” a rate reduction to lower inflation “allowing” one, we still believe this will be enough for the RBA to deliver a 25bp rate cut in February.
Following a retest of the October 2022 low of 0.617, the AUD/USD has turned more positive as it breaks out of a short-term base pattern.
The key overhead resistance is still between 0.6349 and 0.6338.
A persistent breach above that region, in our opinion above, should be seen as a longer-lasting pro-cyclical signal that applies to all markets.
Aussie, kiwi fall from recent highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 27 Jan – 1 Feb
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
