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  • AUD/USD is a slow burner in North American markets having already reached R1 up at 0.7345 and exceeding Nov’s previous peak at 0.7337 following a sharp correction in the greenback, fuelled by a dovish rhetoric from Powell yesterday.  
  • Traders are building up and positioning ahead of the weekend where Xi and Trump are slated to dine and discuss trade during the G20 summit in Buenas Aires.  
  • AUD/USD is currently drifting to the downside on the hourly-minute chart, pressured by supply and testing the bull’s commitments at the 21-hr SMA, (0.7313).

AUD/USD is a keen focus considering the activity in the commodity sector and focuses on the US dollar which plays a massive hand in the commodities market of which the Aussie trades as a proxy. While the price of oil is grabbing trader’s attention, (having recently made yet another low in WTI overnight, $49.51bbls), metals have a closer relationship to AUD and it is worth noting the strong correlation that both the dollar and China economic sentiemt have with the likes of copper and iron ore, of which too can dictate the level of the Aussie.  

Copper, along with all base metals, surged on yesterday’s rhetoric from Fed’s Powell when he said that interest rates are “just below” the so-called neutral range. This came in stark contrast to previous comments made back in October that suggested that the Fed were not sure how close they were to the neutral field and that gradual rate hikes were a dead cert. However, whether the market has overreacted or not is yet to be seen, and we will need to wait for the December decision to see what inevitable changes will have been made to the FOMC’s dot plot and economic forecasts.

Meanwhile, shares of mining companies rallied in tandem with the metals and helped US indexes to continue correction the October rout, en-route to the 50% retracements of the rout. On such a play, the Aussie has benefitted and is extending its revision of the 2018 downtrend, breaking above the 23.6% fibo for a third attempt to hold above it for November, and what is encouraging is that on each break, the Bulls score a higher high; The price is now at the highest level since late summer levels.  

FOMC minutes coming up

We have the FOMC minutes today. However, they are unlikely to give us too much of a show considering whatever upbeat tone may come of them, the market has already traded on that, and the markets may be quick to dismiss it given the volatility we have endured since.

AU-US yield spread is key

So long as the AU-US yield spread continues to tighten, AUD/USD, that vaulted the 0.73 handle, crashing through the 10-DMA en-route to Nov’s peak up at 0.7337 yesterday, can stay elevated above the 23.6% Fibo with eyes set on the 200-D SMA and confluence of the 38.2% Fibo around 0.7450 – Particularly if positive trade headlines emerge from this week’s G20 summit.

Xi/Trump summit is the immediate focus

What we know so far is that Trump is going to be reluctant to give much room in China’s favour. Frankly, I like the deal we have right now,” he said today, referring to tariffs. He is on his way to Argentina now and is scheduled to dine with Xi on Saturday – (Market sentiment remains extremely sensitive after the US administration recently signalled its frustration with the Chinese proposals).

On the most optimistic viewpoint, 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. Anything less than that, a long drawn out series of negotiations will likely follow and leave the dispute up in the air and weighing on AUD/USD for the foreseeable future. The weekend will be full of headlines and will make for an opening gap, either up or down, in Asia, so positions in AUD/USD are likely to be trimmed tomorrow which could weigh on AUD/USD into the close in Asia today, European and US markets tomorrow.  

Capex data inline with RBA’s expectations

However, taking into consideration that the latest Capex data would likely please the RBA, despite the miss in market expectations, due to the upgrade to capex intentions over 2018/19 as being consistent with the Bank’s expectation for business investment, so long as the dollar remains on the backfoot, the bulls will likely hold the fort at the 23.6%, a touch below the 0.73 handle at 0.7280.  

AUD/USD levels

The technical picture is leaning bullish as RSIs rise. and the pair holds above 10 & 21-DMAs and daily cloud and 23.6% Fibo. The recent highs are pivotal at 0.7345 and bulls can target the 200-D SMA at 0.742 and proximity of the 38.2% Fibo of the 2018 highs to recent lows at 0.7450. However, on the downside, should support at the 10-D SMA at 0.7264 give, the 0.72 handle could be compromised.