"Despite the PBoC’s efforts to support growth via domestic demand, Chinese exports remain vulnerable to weak demand in the EU; its main trading partner.   Not only that but reports of increased central bank diversification into the AUD refer to previous periods.  Given liquidity concerns, there are no guarantees that this demand will continue to gather pace.  Indeed, if confidence in the coherence of EMU increases in 2013, diversification trades could stagnant or even reverse if EUR positions are re-entered.  Over the medium-term we continue to favour declines in the AUD vs. the CAD and in ‘risk-off’ phases we expect the AUD to struggle vs. the USD.  That said we are medium-term USD bears.  While the USD will benefit from any resurgence of EMU market tensions in the coming weeks, against the backdrop of very accommodative Fed policy we expect the USD to weaken into year-end and remain on the back foot during 2013.  As a consequence of USD weakness, AUD/USD downside could be limited and that AUD/USD will continue to give the appearance of resilience well into the New Year."
Jane Foley, Currency Strategist at Rabobank International.