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(BFW) Daily FX View: AUD, NZD Fall As China Fincl Conditions Tighten

NZD, AUD underperformed, JPY outperformed as China bank borrowing costs rise, banks increase bad loan write-offs, Bloomberg strategist TJ Marta writes.

• China conditions tightening:
• Bank borrowing costs higher; 7-day repo +47bps to 4.05%; overnight rate +72bps to 3.80%
• Largest Chinese banks triple bad loan write-offs for 1H, stoking concern they may be clearing accounts for new defaults

• NZD underperformed 22 peers overnight:
• NZD/USD down sharply, breaking lower from 3-day consolidation of mid-Oct. rally
• Support 0.8194 Oct. 2 low, 0.8163 Aug. 19 high

• AUD underperformed 20 peers
• Losses mitigated by 3Q CPI 1.2%q/q vs est. 0.8%
• AUD/USD forming outside day lower after reaching new high since June
• Technicals signal AUD extremely overbought: stochastics near high for 2013, MACD high since 2012, RSI falling from high since 2011
• Support 0.9529 Sept. 18 high, 0.9281 Sept. 30 low

• JPY outperformed 22 peers:
• USD/JPY continued correction from 99.17 Oct. 17 high
• MACD about to cross lower, stochastics crossing lower, supporting continued move lower
• Support ~97 late-Aug. lows, 96.57 Oct. 8 low

• CAD risk from BoC decision/statement
• Unanimous est. from 23 economists for unch. 1.00% rate
• Statement watched for reiteration or removal of tightening bias
• USD/CAD higher on China developments
• On daily chart, rebounding after consolidating for 3 days at/below 1.03; resistance 1.0420 Oct. 10 high

• NOTE: TJ Marta is an FX strategist who writes for First Word. The observations he makes are his own.