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  • AUD/USD has managed to hold up even in the face of escalating trade tensions between the US and China and Australian political turmoil.
  • AUD/USD climbed with vigour from the lows of 0.7144 through the symmetrical triangle and scored a high of 0.7220 in Europe intra-day high until China came back with their retaliation tariffs.
  • We would allow for recovery towards the 55-day ma at 0.7322.
  • Maybe crosses is the way to go?

AUD/USD has managed to hold up even in the face of escalating trade tensions between the US and China and Australian political turmoil. AUD/USD dropped on the news yesterday and fell out of the symmetrical triangle from 0.7183 to a low of 0.7144 but moved back into the triangle and confirmed the head fake. Currently, the pair is trading at 0.7217, just below the session highs of 0.7221.

AUD/USD found buyers where the DXY failed to climb on the trade news.  Instead, traders sold into the fact after an initial head fake higher where the price gapped from 94.51 to 94.60 – and that was it. The dollar drifted sideways and lower to 94.40.   AUD/USD then climbed with vigour from the lows of 0.7144 through the symmetrical triangle and scored a high of 0.7220 in Europe intra-day high. That was until China came back with their retaliation tariffs on US Goods   – These will be effective on 24 September, with rates ranging between 5 and 10% on $60b. The Chinese have also filed a complaint to WTO on the latest US tariff measures on $200Bln worth of Chinese goods – (RTRS). AUD/USD has subsequently stalled and the DXY is slightly firmer at 94.50, recovering from aforementioned lows.  

However, all in all, the subsequent price action suggests that the trade war tide may be turning on the US dollar. The greenback had been catching a bid on the uncertainty as investors sold out of EM-FX and bought into the greenback and the Aussie, trading as a proxy the EM-FX and trade war woes and was the first to be punished – but in recent events, the Aussie has performed well and the greenback is a mere shadow of its former self.  

USD/CNH has also held up pretty well  (range of 6.8880 – 6.8620 only on the recent events).  Risk apatite is firm, USD/JPY is at 9-week highs on the 112 handle, (high 112.39) – Wall Street rallies. However, EUR/USD is off – meanwhile, US yields are up, (10-year at 3.04%), supporting the greenback so it is hard to see AUD/USD really taking off at this juncture.  

Maybe crosses is the way to go?   – (AUD/JPY rallied from 79.77 to 81.12)

However, with the RBA firmly on hold, backed by headline GDP growth above 3% and commodity prices grinding higher, AUD has the scope for recovery on crosses in coming months – according to analysts at Westpac “But in the next few weeks, AUD’s apparent role as proxy for US-China trade relations seems likely to cap rallies.”  

AUD/USD levels

The chart formation is a bullish pennant and offers a potential 60 pips from the breakout at 0.7185 to 0.7245 – (just exceeding 23rd Aug low at 0.7237). “AUD/USD is viewed as consolidating its recent gains and is bid very near term. We would allow for recovery towards the 55-day ma at 0.7322 and we will need a close above here, and preferably above the 2018 channel at 0.7383, to confirm a short-term reversal,” – analysts at Commerzbank argued.  

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