Aussie Coal To Be Used

In the latest sign of just how far reaching the global energy crisis has become, China has been forced to backpedal over its ban on Australian coal imports. The near two-year trade war that has ballooned between the two countries has seen China banning the import of many commodities from Australia. Among these was coal. Vast amounts of Australian coal shipments have been stranded off the coast of China this year as a result of the embargo. However, with the energy crisis causing major issues for the world’s seconds largest economy, the Chinese government has now been forced to do a U-turn and release some of the bonded coal shipments.

Import Needs Growing

Following around 5 years of output restrictions in China, the country is at a significant disadvantage when it comes to supply fuel for industrial facilities. As a result, the country has been stepping up its coal imports from other suppliers such as Kazakhstan. China was even seen importing coal form the US for the first time in June and July. However, demand needs soaring, the country has now been forced to tap into Australian supply.

Evergrande Risks

China is currently being closely watched on the global stage as fears over the health of the economic recovery come into focus. The Evergrande situation is creating a deep level of uncertainty with fears that Evergrande might prove to be the Chinese Lehman Brothers (the US bank which collapsed and triggered the start of the GFC). Given the size of Evergrande, the contagion risks from such a collapse would be devastating. On the global scale, such an event happening on the back of the pandemic and with the current energy crisis, there are fears of the recovery stalling. The market is currently awaiting news on whether the Chinese government will bail Evergrande out (which would be best for the market) or if the company will undergo a managed collapse or simply be allowed to implode.

Technical Views

USDCNH

Following the breakdown below rising channel from year to date lows, USDCNH has been grinding lower within a narrow bearish channel. Price is currently hovering around the 6.4490 level, which continue to be a magnetic band of price for the pair. Indicators are fairly flat here meaning there is room for a break eitherside. In terms of levels, 6.4964 is the key topside marker to break while to the downside, 6.4018 is the level to watch.