The dollar is firmer across the board as it continues its rampaging run as of late, with a further breakdown in the Chinese yuan also exacerbating gains for the greenback.
The yuan's plunge is also having a bit of a spillover impact to the aussie and kiwi as both currencies are falling rather significantly now ahead of European trading. The onshore yuan has just weakened to 6.61 against the dollar and that is sending the aussie and kiwi to fresh lows on the day.
Historically, yuan volatility such as the one we're seeing in the past two weeks have come in batches and when they do hit, there are significant spillovers. The most notable being that when the yuan depreciates, there tends to be a more risk averse trend in the major currencies space with the dollar gaining. Today seems to be no exception.
AUD/USD is down 0.7% to 0.7076 with little standing in the way of another push towards key support at 0.7000. Meanwhile, a look at NZD/USD:
The pair is down to its lowest since June 2020 as it is down over 1% to 0.6475. Of note, the pair is breaking below 0.6500 and is headed for a test of the 50.0 retracement level @ 0.6467. The latter will be key in seeing if buyers have the appetite to defend against the drop but otherwise, it could be a slippery slope next.
As for why I'm attributing the yuan's drop to the moves here, it mainly comes as equities sentiment is faring better on the day. S&P 500 futures are up 0.8% currently. I mean, for the aussie and kiwi's sake, that's probably a relief as a meltdown in stocks will just exacerbate the drop we are seeing here - adding to further tailwind for the dollar as well.
