The currency is headed lower this afternoon after breaching its recent low at 90.6 cents:
The capex report is so yesterday it seems. Hard to know if the Government’s dramatic swing towards protectionism is at fault as less foreign flows are an excuse to send the Aussie lower.
I’m more inclined to the view that concerns are mounting about China’s shift to reckless foreign policy posturing making the Australian proxy a little risk off. Fresh from the WSJ:
China’s move to enforce an air-defense zone has several countries in the region concerned. The WSJ’s Deborah Kan speaks to Scott Harold of RAND Corp., a global think tank, on why China may be playing the wrong hand in its play for islands in the East China Sea.
The U.S. challenged the zone’s credibility on Tuesday by sending in two B-52 bombers without informing Chinese authorities, who had warned when they declared the zone on Saturday that such incursions would be met with unspecified “defensive emergency measures.”
The conflicting signals from Beijing highlight the challenge the Chinese leadership faces as it tries to contain the international fallout from its surprise decision to establish the zone, without appearing weak in front of an increasingly nationalistic domestic audience.
China’s apparent easing of its original warning suggests its fighters will monitor and escort rather than repel U.S., Japanese and South Korean aircraft that violate the rules of the zone, which covers islands claimed by Beijing and Tokyo, said Chinese and foreign analysts. The spat over the uninhabited islands in the East China Sea—known as the Senkaku in Japan and Diaoyu in China—has escalated over the past year.
To maintain its credibility internationally and domestically, China is likely to increase such escorts, a move that in such a tense political climate greatly increases the risk of an aerial incident that could spiral into a military clash, analysts and diplomats said.
…International-relations and defense experts said the problem with China’s zone wasn’t that it had been established unilaterally. Many countries, including the U.S., have done the same. What is unusual and controversial about China’s zone is that it covers disputed territory, they said.
“China’s probably calculating that this is incrementally making other countries accustomed to accepting its authority in international air space,” said Rory Medcalf, an expert on Asia security issues at Australia’s Lowy Institute for International Policy. “It’s looking like a potential liability because it could end up losing diplomatically and at the same time lose credibility with its own population.”
Yep, China has trapped itself between losing face at home and abroad. A boxed-in power is an unpredictable one.
The dollar must be getting very oversold but the path of least resistance appears down while the strategic environment remains vexed and Wall St returns tonight from Thanksgiving to confront it.
