China Chill Deepens, Copper Breaks Support

A wall of worry about the Chinese economy struck risk assets on Tuesday. For the second day in a row the Australian dollar was the laggard and the yen led in the classic risk-off trade. Up later, Japan releases CPGI data and consumer confidence while Australia posts home loan data.  

The intricacies of intermarket trading were on display Tuesday as a breakdown in copper prices spilled over to broader markets. Prices broke a double bottom at $300 from 2011 and 2013, setting off a wave of selling in risk assets.

The problems from copper originated in China. Copper and iron ore are popular collateral for loans in China and a number of invoicing and stockpiling scams have been uncovered. The government began cracking down on abuse late last year and copper prices have been under pressure.

Fears ramped up after the plunge in exports reported on the weekend and the flames were fanned Tuesday when shares of a Chinese power company were suspended and rumors of a bankruptcy circulated.

After copper broke down, AUD/USD and USD/JPY followed. The Australian dollar broke below 0.9000 and the 61.8% retracement of last week's rally – a bearish signal. USD/JPY slumped through 103.00 but found support at 102.85. WTI crude also fell to the lowest in a month at $99.32.

Economic data in the hours ahead is noteworthy but probably won't move markets. At 2350 GMT, Japan releases the tertiary index, corporate goods price index and the quarterly business sentiment index. At 0030 GMT, Australian home loans are expected to rise 0.5% m/m. Much later, at 0500 GMT, it's Japanese consumer confidence which is expected at 40.0. Skittish consumers ahead of the April tax hike could encourage more BOJ easing.