- AUD/USD’s rally is faded ahead of major risk events on the back of benign inflationary data and profit taking kicks in.
- Sino/US trade negotiations at the heart of markets.
- Fed sideshow distracts, but rightly so.
AUD/USD is currently trading at 0.7188 from a high of 0.7204, printing a low of 0.7145. US Aussie traders walked in today and were changing hands at the lows, riding a recovery drift, soaking up a battered Aussie out of favour of overnight markets ahead of key risk events while the greenback took back control of the G10’s.
The Aussie bulls need to be reminded that while CPI was an upside surprise, it doesn’t move the needle in respect of the RBA. While global politics remain at the core of the markets, central banks and data are becoming a theme again and the divergence between the US economy and the Australian economy, subject to what goes down in China town, is at the heart of this recent fade.
Ok, CPI was a lift, but not a game changer, and considering how closely correlated the currency is to risk appetite, this week’s Sino/US trade talks, Fed, US data coupled with ongoing sagas throughout Europe, (Italy, softening in Germany, domestic challenges for Macron in France, Brexit in the UK to a cliff’s edge) and general global economic uncertainties, markets are going to be nervous over where all of this is heading.
AUD/JPY will likely be a thorn in the bull’s side at this juncture – as the FX market’s risk barometer. There could be some relief in commodities should the dollar fade away over the horizon on dovish Fed sentiment today, but China’s growth is real and will continue to weigh on the Aussie.
The Fed offers a statement today which should be clear on data dependency, despite the US shut down. So “We will let you know when things change”…should be the message from the statement – However = Powell can be quite colourful and could drop a dovish bomb as we have heard and traded before.
Trade talks between the US and China are now in play
Top trade officials from the US and China will meet in Washington today as a deadline to strike a deal approaches in the second round of talks since Presidents Donald Trump and Xi Jinping met in Argentina last year. There is widespread scepticism that the two sides can reach a substantive deal by the 1 March deadline.
AUD/USD levels
Analysts at Commerzbank suspect that the correction lower ended at 0.7077 (Friday’s low) as the market charted an outside day to the topside:
“We look for the market to rally towards tougher resistance at .7246, the mid-December high, and the double Fibonacci retracement at .7251/71. Dips lower will find minor support at .7077/65 and the .7022 end of October low. Beyond this pullback, the market targets the September and early November highs at .7302/14 and the 200 day ma at .7295, where it is expected to struggle.”
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