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  • AUD/USD is chipping away to the downside in relatively quiet markets ahead of Federal Reserve Chair Jerome Powell speaking at 12:00 ET / 18.00 CET / 17:00 GMT today.
  • The dollar was unchanged following the real GDP growth in Q3 (second estimate) unchanged at 3.5%, as expected.
  • Rhetoric has intensified ahead of the Trump-Xi meeting later this week, and markets have responded in kind – AUD/USD trades as a proxy and is a significant focus in the FXs space this week.

AUD/USD travelled from a pip below the 0.72 handle yesterday to a North American session high of 0.7228 before reaching a late Asian high of 0.7242. The pair then slid to 0.7223 as a line in the sand where demand stepped back in as London got on board and took the couple up to the recent 0.7247 NY high before slipping back to 0.7225 in recent trade and to current levels around 0.7230.  There are many factors in play, and the greenback is stealing the limelight once again.

Greenback in focus

The DXY has maintained form on the 97 handle, travelling from 96.41 last Friday to over a point above with a fresh high scored today at 97.53, (yesterday’s high was 97.50). At first glance, one might be quick to put the resurgence in the dollar down to good old-fashioned risk-off flows, whereby investors are struggling to find an alternative to park idle capital considering the number of headwinds the global economy is facing which discourages risk appetite.  

One of the major  and most immediate risks out there that have been taking their toll in financial and commodity markets are trade disputes between Beijing and Washington. However, one day after President Trump’s threat to hike tariffs, White House economic adviser Larry Kudlow reversed the outlook and argued that Trump and Chinese President Xi Jinping would in-fact, have constructive discussions and reach an agreement when they meet this Saturday over a dinner meeting. US equities rallied on the news and took their place back in positive territory for the year, recovering from a sea of red.  However, the dollar stayed strong, so that signals there is more to the dollar’s strength than risk-off flows.

While the Aussie tracked the return of risk appetite, bulls did not do enough to convince on the upside which indicates that investors are not so convinced that a rapid solution to the trade war saga can be made over a dinner between Xi and Trump, nor within one or two follow up negotiations. What we might see is an immediate postponement of 25% tariffs on USD 200 billion of Chinese imports, which could be just enough to spur on a relief rally in AUD/USD.  

Today’s speech from Powell to the Economic Club of New York  will be critical

As explained, the dollar is taking up a bid elsewhere, and whether that is to do with seasonal factors, (typically, the dollar is bod into year end of repatriation flows), or a combination of rate hike expectations, today’s speech from Powell to the Economic Club of New York, will be critical. We hope to get interesting clues about the Fed’s view of the US economy and the rate hike intentions in 2019 while his comments will also be closely scrutinised for anything that could signal a pause in December. Should that be the case, we could see some upside pressures reignited in AUD/USD and some position jockeying ahead of the keenly await Xi/Trump summit.

Key data points –  AUD/USD bulls could well find themselves back in control again

On the data front, we will see Aussie Q3 private capital expenditure that is expected to post a modest lift of +0.5% – A better result would be bullish. Meanwhile, from the US, we have started to see some deterioration in economic numbers that could well weigh on the dollar in time to come, and should we see a thawing of discord between Washington and Beijing, AUD/USD bulls could well find themselves back in control again.  

After today’s US GDP data that arrived as expected, Joseph Trevisani, Senior Analyst at FXStreet, explained that US economic growth in Q3, confirmed at 3.5% was never the problem:

“It’s the slope down to 2.5% in Q4 and beyond that should worry the Fed. Whether rate increases are the cause is debatable, but the governors do not want to be blamed for a return to the post-recession doldrums.”

On the 21st November, Joseph argued that the lack of business investment in capital goods for the third straight month was a warning that despite the 3% expansion in the US, there are enough gathering headwinds to make business cautious – “Particularly trade disputes and concerns on growth in Europe the UK and China.”

AUD/USD levels

  • Pivot point support levels: 0.7200, 0.7162 and 0.7125.
  • Pivot point resistance levels: 0.7265, 0.7302 and 0.7335.

AUD/USD would likely vault the 0.73 handle with ease should there be a  firm sentiment of a trade war truce between Washington and Beijing. The initial barrier  will be the double top highs around 0.7275/80, (23.6% fibo level). 0.7338 was the 11-week high the guards a run towards the 200-D SMA at 0.7425 and confluence of the 38.2% Fibo of the 2018 highs to recent lows at 0.7443. However, at this juncture, while below the 10-D SMA located at 0.7254, bears target a break to the 0.7164 recent lows that  guard  0.7085 as the 10th Sep lows. 0.7020 are the 2018 lows.