Athens awaits, Shanghai recuperates

Although Chinese authorities would likely prefer to maintain CNY stability and possibly delay any band-widening intentions to avoid exacerbating negative sentiment and capital outflows, commodity currencies will be most vulnerable should the Chinese equities rout extend, given the recent impact of Chinese stock volatility on commodity prices.

China's stock market and related policy developments will be more closely monitored by markets, given that the sharp fall in Chinese equities has started to send shock waves through broader markets. The economic impact of China's leverage-driven equity boom-bust should not be overstated, although downside risks to growth could rise via its impact on financial sector activity if the sell-off persists. 

"Even if risk sentiment improves, real activity for China this week is likely to weigh on commodity currencies, leading to continued underperformance, as IP and fixed asset investment (FAI) are expected to have moderated further in June. Q2 GDP growth is likely to have dropped to 6.7% y/y from 7.0% y/y in Q1", says Barclays. 

Meanwhile, the JPY has benefited as a safe haven currency amid the rise in risk aversion last week, with the beta to Chinese equity performance firmly negative. BoJ Governor Kuroda's comment at the MPC press conference on Wednesday could provide some guidance as to the bank's latest stance on the exchange rate, considering that he said last month that JPY REER was very weak and unlikely to weaken further.