AUD/USD weakened significantly overnight, in line with the sharp drop in risk appetite as traders once again hit the sell button following the dead cat bounce. AUD/USD tracked weakness across the commodities complex as NY copper was belted to the tune of 7.5%.

During Asian trade, AUD/USD traded up to 0.9953 before selling off to a low of 0.9772. Two reports from the likes of BOA/ML and Barclays seemed to spook the market, as both suggested China could actually see a hard landing, something most analysts have been saying won’t happen. BOA/ML’s David Cui, rated number one China strategist according to the 2011 Institutional Investor All-China Survey, said there was now a good possibility of a hard landing in China and increased risks of sub 7% growth.

While this is still not our base case, the fact that it is being mentioned is a worrying sign and could see the AUD under pressure. Interestingly, the Shanghai Composite is now down 22% from its year high and is at a 52-week low. AUD/USD has weakened further in Asian trade, last at 0.9717.