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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.”