According to Sean Callow, analyst at Westpac, AUD has absorbed a great deal of negative news on US-China trade relations over the past month, driving notable underperformance against EUR.
Key Quotes
“The turmoil included the US’s planned new tariffs on Chinese imports, the long-awaited break of USD/CNY 7.00 and the US’s swift response to formally label China a currency manipulator.”
“There is unlikely to be any real improvement on this front in coming weeks, keeping a lid on AUD on crosses given it appears to be the market’s proxy of choice for US-China trade news.”
“But a gloomy picture may be broadly priced in, with spec AUD positioning firmly short. Australia’s record trade surpluses provide a strong starting point if there is to be trade contagion in coming months.”
“A steady hand from the RBA in Sep plus resource company dividend payments should also help AUD near term. Meanwhile, the ECB on 12 Sep should deliver at least a rate cut and pledge to resume asset purchases, while leaving the door open to further easing measures.”
“This should see AUD recover a little of its lost ground multi-week, to around EUR 0.6150/60 or AUD 1.6250. It is hard to see the Aussie much firmer though without an unexpected improvement in global trade.”
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