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  • AUD/USD is currently trading at 0.6995 between a range of 0.6992 and 0.7027, falling -0.24% on the day and heading lower within the descending channel.  
  • The Aussie is under pressure due to the toeing and froing of trade war headlines between Beijing and the US, the latest being that China will take the appropriate retaliation measures if tariffs increase.  

The Aussie dollar has come under pressure, extending the downside as expected should price continue to follow the laws of gravity within the descending channel. The fundamentals also marry up despite a steady hand from the RBA earlier in the week while the focus stays on Sono/US trade wars and the recent escalation.  

China trade disappoints

Firstly, China’s trade data was a disappointment, but hardly surprising and likely to continue to disappoint down the line.  Analysts at TD Securities noted that China April exports were weaker than expected (-2.7% y/y, market 3.0%, TD 6.9%) while imports were stronger (4.0% y/y, market -2.1%, TD -3.5%), giving a net result of a much smaller trade surplus than expected.

“China’s overall trade surplus increased to $90.2bn over the first 4 months of the year compared to $70.9bn over the same period last year. In terms of the country breakdown China’s trade surplus with the US was $21.0bn, with exports to the US dropping by 13.1% and imports falling 25.7% y/y. The trade surplus with the US is showing little sign of eroding, with the 12m sum remaining elevated around $327.5bn.”

A per trade war updates, China has backtracked on legal issues throughout text of proposed U.S. trade agreement, affecting nearly every chapter-sources with knowledge of talks.  

Trade wars

Here are the key points, courtesy of Reuters:

  • Chinese Foreign Ministry spokesman Geng Shuang told a briefing on Wednesday that working out disagreements over trade was a “process of negotiation” and that China was not “avoiding problems”.
  • The Chinese reversal may give China hawks in the Trump administration, including Lighthizer, an opening to take a harder stance.
  • Trump’s tweets left no room for backing down, and Lighthizer made it clear that, despite continuing talks, “come Friday, there will be tariffs in place.”
  • The administration said the latest tariff escalation would take effect at 12:01 a.m. Friday (0401 GMT), hiking levees on Chinese products such as internet modems and routers, printed circuit boards, vacuum cleaners and furniture.

China’s response to the tariff threat: (Danske Bank)

  • “After being silent for a while, Chinese state media started to release a response to the tariff threat and the view was mostly defiant. The strongest words came from People’s Daily’s WeChat account Tuesday: “Things we think are advantageous for us, we will do it even without anyone asking ” adding that “Things that are unfavourable to us, no matter how you ask, we will not take any step back. Do not even think about it “, see SCMP 7 May.
  • Other articles highlighted the resilience of the Chinese economy and that China had measures to keep the economy stable. An article in the generally more nationalistic Global Times had the headline “China ready for any outcomes in trade talks with US”, Global Times 8 May. The article says “No matter what the US side wants to do in the negotiations, China has the confidence to handle it.
  • The worst-case scenario is that the negotiations break down and Washington comprehensively raises tariffs. Even if this happens, the Chinese economy will be able to withstand it.” However, China has also stated it is open to continue talks for mutual benefit, hoping that the two sides can “meet each other half way”.  

AUD/USD levels

  • AUD/USD technical analysis: Aussie dwindling to daily lows below the 0.7000 figure

Bears are on the path down to the 0.6950 61.8% retracement target:

Analysts at Commerzbank explained that they suspect the  market will continue to stabilise – “We note the divergence of the daily RSI”. Additional, the analyst’s sight that below 0.6950 (not favoured) there is scope for the 0.6857/78.6% retracement.

“Rallies will now find initial resistance offered by the 55 day ma at 0.7092 and will need to regain this for a viable shot at the 0.7207 February high. Price action in January was exhaustive – the market charted a hammer (reversal). This suggests the down move ended at 0.6738.”