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  • AUD/USD lifted on PBoC re-instated a 20% reserve requirement on some trading of FX forwards.
  • US data disappoints, pointing to a slower Q3, supports  Aussie for the near term.
  • Tradewars not going away anytime soon, a broader risk for high-betas.
  • Eyes turn to  this week’s monthly statement and quarterly statement on monetary policy from the RBA.

AUD/USD’s dips have been bought in the open this week, with an initial offer in thin trade where ranges are narrow despite the risk-off feel centred around the trade-war spat – however, for the Aussie, the main catalyst has been China’s reintroduction of reserve requirements for FX forwards by the PBoC supporting the antipodeans.

As analysts at ANZ explained in full here, (China makes it more expensive to short CNY – ANZ), the PBoC re-instated a 20% reserve requirement on some trading of FX forwards – a move akin to that on 1 September 2015 to help stem CNY declines after the August devaluation.  

However, while the CNY’s support may prove fleeting, the end to the rade wars are not yet in sight and that should keep a lid on the Aussie’s comeback ahead of the RBA this week, no matter how disappointing the end of week’s data came in for the US, with both the nonfarm payrolls missing expectations and ISM services also well below forecast, both hinting at a Q3 slowdown.  

Eyes turn to  this week’s monthly statement and quarterly statement on monetary policy from the RBA

Indeed, AUD/USD rallied sharply on the PBoC action, driving both the yuan and high-betas higher, but it will now be the RBA that dictates the next immediate course for the pair where a dovish outcome is widely expected, despite the blockbuster Q2 real retail sales arriving at +1.2%/q (mkt +0.8%/q) – indeed, the RBA is more likely to sticks to the familiar ‘glass-half-full’ stance in this week’s monthly statement and quarterly statement on monetary policy.  

AUD/USD levels

Valeria Bednarik, chief analyst at FXStreet explained that  the pair presents a neutral-to-bearish stance in the daily chart, stuck around a flat 20 DMA but below the larger ones, with a strongly bearish 100 SMA currently at around 0.7500:

“The Momentum indicator in the mentioned chart head nowhere around its 100 level, while the RSI does the same around its mid-line. Shorter term, and according to the 4 hours chart, the price hovers around a congestion of moving averages, which reflect the absence of directional strength, while technical indicators recovered from oversold readings to turn flat around their mid-lines, also offering a neutral stance.”

However,  the trade war spat angst could open a complete unwind of the two-year year-long reflation trade and that keeps the downside open towards the 0.72 handle. Below there comes the 0.7110/70 support zone – indeed, the longer-term bear trend is likely to resume solely on the back of the RBA & Fed rate paths in divergence.